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Form 10-Q HUDSON TECHNOLOGIES INC For: Mar 31

May 6, 2016 6:25 AM EDT

 

 

UNITED STATES

Securities and Exchange Commission

Washington, D.C. 20549

 

Form 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

 

For the quarterly period ended March 31, 2016

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

 

For the transition period from ____________ to ____________

 

Commission file number 1-13412

 

 

 Hudson Technologies, Inc.

 

 

(Exact name of registrant as specified in its charter)

 

New York

(State or other jurisdiction of

incorporation or organization)

13-3641539

(I.R.S. Employer

Identification No.)

 

1 Blue Hill Plaza  

P.O. Box 1541

Pearl River, New York

(Address of principal executive offices)

10965

(Zip Code)

   
Registrant’s telephone number, including area code (845) 735-6000

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)

x Yes ¨ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

  Large accelerated filer ¨ Accelerated filer x
  Non-accelerated filer (do not check if a smaller reporting company) ¨ Smaller reporting company ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:

 

Common stock, $0.01 par value   32,968,741 shares
Class   Outstanding at April 29, 2016

 

 

 

 

 

 

Hudson Technologies, Inc.

 

Index

 

Part   Item   Page
         
Part I.   Financial Information    
         
    Item 1 - Financial Statements    
      - Consolidated Balance Sheets   3
      - Consolidated Income Statements   4
      - Consolidated Statements of Cash Flows   5
      - Notes to the Consolidated Financial Statements   6
    Item 2

- Management’s Discussion and Analysis of Financial Condition and Results of Operations

  15
    Item 3 - Quantitative and Qualitative Disclosures About Market Risk   21
    Item 4 - Controls and Procedures   21
         
Part II.   Other Information    
         
    Item 1 - Legal Proceedings   22
    Item 6 - Exhibits   22
         
    Signatures   23

 

 

 

Part I – FINANCIAL INFORMATION

Item 1-Financial Statements

 

Hudson Technologies, Inc. and Subsidiaries

Consolidated Balance Sheets

(Amounts in thousands, except for share and par value amounts)

 

   March 31,   December 31, 
   2016   2015 
   (unaudited)     
Assets          
Current assets:          
Cash and cash equivalents  $1,167   $1,258 
Trade accounts receivable - net   15,840    4,414 
Inventories   55,284    61,897 
Deferred tax asset   376    376 
Prepaid expenses and other current assets   3,728    1,524 
Total current assets   76,395    69,469 
           
Property, plant and equipment, less accumulated depreciation   7,216    7,536 
Other assets   70    76 
Deferred tax asset   1,562    3,287 
Goodwill   856    856 
Intangible assets, less accumulated amortization   3,634    3,787 
Total Assets  $89,733   $85,011 
           
Liabilities and Stockholders' Equity          
Current liabilities:          
Trade accounts payable  $3,799   $5,792 
Accrued expenses and other current liabilities   2,668    3,018 
Accrued payroll   256    1,577 
Short-term debt and current maturities of long-term debt   26,141    20,573 
Total current liabilities   32,864    30,960 
Other liabilities   0    333 
Long-term debt, less current maturities   4,212    4,293 
Total Liabilities   37,076    35,586 
           
Commitments and contingencies          
           
Stockholders' equity:          
Preferred stock, shares authorized 5,000,000: Series A Convertible preferred stock, $0.01 par value ($100 liquidation preference value); shares authorized 150,000; none issued or outstanding   0    0 
Common stock, $0.01 par value; shares authorized 100,000,000; issued and outstanding 32,968,741 and 32,804,276   329    328 
Additional paid-in capital   62,450    62,163 
Accumulated deficit   (10,122)   (13,066)
Total Stockholders' Equity   52,657    49,425 
           
Total Liabilities and Stockholders' Equity  $89,733   $85,011 

 

See Accompanying Notes to the Consolidated Financial Statements.

 

 

 

Hudson Technologies, Inc. and subsidiaries

Consolidated Income Statements

(unaudited)

(Amounts in thousands, except for share and per share amounts)

 

   Three month period
ended March 31,
 
   2016   2015 
         
Revenues  $28,167   $22,103 
Cost of sales   20,645    16,578 
Gross profit   7,522    5,525 
           
Operating expenses:          
Selling and marketing   1,117    960 
General and administrative   1,386    1,295 
Total operating expenses   2,503    2,255 
           
Operating income   5,019    3,270 
           
Interest expense   271    207 
           
Income before income taxes   4,748    3,063 
           
Income tax expense   1,804    1,170 
           
Net income  $2,944   $1,893 
           
Net income  per common share - Basic  $0.09   $0.06 
Net income  per common share - Diluted  $0.09   $0.06 
Weighted average number of shares outstanding - Basic   32,888,659    32,333,443 
Weighted average number of shares outstanding - Diluted   33,944,876    34,280,385 

 

See Accompanying Notes to the Consolidated Financial Statements.

 

 

 

Hudson Technologies, Inc. and subsidiaries

Consolidated Statements of Cash Flows

Increase (Decrease) in Cash and Cash Equivalents

(unaudited)

(Amounts in thousands)

   Three month period
ended March 31,
 
   2016   2015 
         
Cash flows from operating activities:          
Net income  $2,944   $1,893 
Adjustments to reconcile net income  to cash used by operating activities:          
Depreciation and amortization   606    544 
Allowance for doubtful accounts   40    24 
Value of share-based payment arrangements   11    77 
Amortization of deferred finance costs   31    31 
Deferred tax asset utilization   1,725    1,165 
Changes in assets and liabilities (net of acquisition):          
Trade accounts receivable   (11,466)   (4,191)
Inventories   6,613    (3,065)
Prepaid and other assets   (2,229)   (162)
Accounts payable and accrued expenses   (3,998)   2,872 
Cash used by operating activities   (5,723)   (812)
           
Cash flows used by investing activities:          
Payments for acquisitions   0    (2,424)
Additions to property, plant, and equipment   (133)   (59)
Cash used by investing activities   (133)   (2,483)
           
Cash flows from financing activities:          
Proceeds from issuance of common stock   278    70 
Proceeds from  short-term debt – net   5,580    2,822 
Repayment of long-term debt   (93)   (71)
Cash provided by financing activities   5,765    2,821 
           
Decrease in cash and cash equivalents   (91)   (474)
Cash and cash equivalents at beginning of period   1,258    935 
Cash and cash equivalents at end of period  $1,167   $461 
           
Supplemental Disclosure of Cash Flow Information:          
Cash paid during period for interest  $241   $176 
           
Non cash investing activity:          
Deferred acquisition consideration  $1,197   $1,902 

 

See Accompanying Notes to the Consolidated Financial Statements.

 

 

 

Hudson Technologies, Inc. and subsidiaries

Notes to the Consolidated Financial Statements

 

Note 1 - Summary of Significant Accounting Policies

 

Business

 

Hudson Technologies, Inc., incorporated under the laws of New York on January 11, 1991, is a refrigerant services company providing innovative solutions to recurring problems within the refrigeration industry. The Company’s operations consist of one reportable segment. The Company's products and services are primarily used in commercial air conditioning, industrial processing and refrigeration systems, and include refrigerant and industrial gas sales, refrigerant management services consisting primarily of reclamation of refrigerants and RefrigerantSide® Services performed at a customer's site, consisting of system decontamination to remove moisture, oils and other contaminants. In addition, the Company’s SmartEnergy OPSTM service is a web-based real time continuous monitoring service applicable to a facility’s refrigeration systems and other energy systems. The Company’s Chiller Chemistry® and Chill Smart® services are also predictive and diagnostic service offerings. As a component of the Company’s products and services, the Company also participates in the generation of carbon offset projects. The Company operates principally through its wholly-owned subsidiary, Hudson Technologies Company. Unless the context requires otherwise, references to the “Company”, “Hudson”, “we", “us”, “our”, or similar pronouns refer to Hudson Technologies, Inc. and its subsidiaries.

 

In preparing the accompanying consolidated financial statements, and in accordance with ASC855-10 “Subsequent Events”, the Company’s management has evaluated subsequent events through the date that the financial statements were filed.

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements and with the instructions of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. The financial information included in this quarterly report should be read in conjunction with the Company’s audited financial statements and related notes thereto for the year ended December 31, 2015. Operating results for the three month period ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

 

In the opinion of management, all estimates and adjustments considered necessary for a fair presentation have been included and all such adjustments were normal and recurring.

 

Consolidation

 

The consolidated financial statements represent all companies of which Hudson directly or indirectly has majority ownership or otherwise controls. Significant intercompany accounts and transactions have been eliminated. The Company's consolidated financial statements include the accounts of wholly-owned subsidiaries Hudson Holdings, Inc. and Hudson Technologies Company. The Company does not present a statement of comprehensive income as its comprehensive income is the same as its net income.

 

Fair Value of Financial Instruments

 

The carrying values of financial instruments including trade accounts receivable and accounts payable approximate fair value at March 31, 2016 and December 31, 2015, because of the relatively short maturity of these instruments. The carrying value of short and long-term debt approximates fair value, due to the variable rate nature of the debt, as of March 31, 2016 and December 31, 2015.

 

Credit Risk

 

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of temporary cash investments and trade accounts receivable. The Company maintains its temporary cash investments in highly-rated financial institutions and, at times, the balances exceed FDIC insurance coverage. The Company's trade accounts receivable are primarily due from companies throughout the United States. The Company reviews each customer's credit history before extending credit.

 

The Company establishes an allowance for doubtful accounts based on factors associated with the credit risk of specific accounts, historical trends, and other information. The carrying value of the Company’s accounts receivable is reduced by the established allowance for doubtful accounts. The allowance for doubtful accounts includes any accounts receivable balances that are determined to be uncollectible, along with a general reserve for the remaining accounts receivable balances. The Company adjusts its reserves based on factors that affect the collectability of the accounts receivable balances.

 

 

 

For the three month period ended March 31, 2016, two customers each accounted for 10% or more of the Company’s revenues and, in the aggregate these two customers accounted for 44% of the Company’s revenues. At March 31, 2016, there were $5,085,000 in outstanding receivables from these customers.

 

For the three month period ended March 31, 2015, two customers each accounted for 10% or more of the Company’s revenues and, in the aggregate these two customers accounted for 42% of the Company’s revenues. At March 31, 2015, there were $2,325,000 in outstanding receivables from these customers.

 

The loss of a principal customer or a decline in the economic prospects of and/or a reduction in purchases of the Company's products or services by any such customer could have a material adverse effect on the Company's operating results and financial position.

 

Cash and Cash Equivalents

 

Temporary investments with original maturities of ninety days or less are included in cash and cash equivalents.

 

Inventories

 

Inventories, consisting primarily of refrigerant products available for sale, are stated at the lower of cost, on a first-in first-out basis, or market. Where the market price of inventory is less than the related cost, the Company may be required to write down its inventory through a lower of cost or market adjustment, the impact of which would be reflected in cost of sales on the Consolidated Statements of Operations. Any such adjustment would be based on management’s judgment regarding future demand and market conditions and analysis of historical experience.

 

Property, Plant and Equipment

 

Property, plant and equipment are stated at cost, including internally manufactured equipment. The cost to complete equipment that is under construction is not considered to be material to the Company's financial position. Provision for depreciation is recorded (for financial reporting purposes) using the straight-line method over the useful lives of the respective assets. Leasehold improvements are amortized on a straight-line basis over the shorter of economic life or terms of the respective leases. Costs of maintenance and repairs are charged to expense when incurred.

 

Due to the specialized nature of the Company's business, it is possible that the Company's estimates of equipment useful life periods may change in the future.

 

Goodwill

 

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in business combinations accounted for under the purchase method of accounting. For the year ended December 31, 2015 the Company performed the annual goodwill impairment assessment using a qualitative approach to determine whether it is more likely than not that the fair value of goodwill is less than its carrying value. In performing the qualitative assessment, we identify and consider the significance of relevant key factors, events, and circumstances that affect the fair value of our goodwill. These factors include external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as our actual and planned financial performance. If the results of the qualitative assessment conclude that it is not more likely than not that the fair value of goodwill exceeds its carrying value, additional quantitative impairment testing is performed.

 

Revenues and Cost of Sales

 

Revenues are recorded upon completion of service or product shipment and passage of title to customers in accordance with contractual terms. The Company evaluates each sale to ensure collectability. In addition, each sale is based on an arrangement with the customer and the sales price to the customer is fixed. License fees are recognized over the period of the license based on the respective performance measurements associated with the license. Royalty revenues are recognized when earned. Cost of sales is recorded based on the cost of products shipped or services performed and related direct operating costs of the Company's facilities. To the extent that the Company charges its customers shipping fees, such amounts are included as a component of revenue and the corresponding costs are included as a component of cost of sales.

 

 

 

The Company's revenues are derived from refrigerant and reclamation sales and RefrigerantSide® Services, including license and royalty revenues. The revenues for each of these lines are as follows:

 

Three Month Period Ended March 31,  2016   2015 
(in thousands, unaudited)        
Refrigerant and reclamation sales  $26,649   $20,487 
RefrigerantSide® Services   1,518    1,616 
Total  $28,167   $22,103 

 

Income Taxes

 

The Company utilizes the asset and liability method for recording deferred income taxes, which provides for the establishment of deferred tax asset or liability accounts based on the difference between tax and financial reporting bases of certain assets and liabilities. The tax benefit associated with the Company's net operating loss carry forwards (“NOLs”) is recognized to the extent that the Company is expected to recognize future taxable income. The Company assesses the recoverability of its deferred tax assets based on its expectation that it will recognize future taxable income and adjusts its valuation allowance accordingly. As of March 31, 2016 and December 31, 2015, the net deferred tax asset was $1,938,000 and $3,663,000, respectively.

 

Certain states either do not allow or limit NOLs and as such the Company will be liable for certain state taxes. To the extent that the Company utilizes its NOLs, it will not pay tax on such income but may be subject to the federal alternative minimum tax. In addition, to the extent that the Company’s net income, if any, exceeds the annual NOL limitation it will pay income taxes based on existing statutory rates. Moreover, as a result of a “change in control”, as defined by the Internal Revenue Service, the Company’s ability to utilize its existing NOLs is subject to certain annual limitations. All of the Company’s remaining NOLs of approximately $5,000,000 are subject to annual limitations of $1,300,000.

 

As a result of an Internal Revenue Service audit, the 2013 and prior federal tax years have been closed. The Company operates in many states throughout the United States and, as of March 31, 2016, the various states’ statutes of limitations remain open for tax years subsequent to 2009. The Company recognizes interest and penalties, if any, relating to income taxes as a component of the provision for income taxes.

 

The Company evaluates uncertain tax positions, if any, by determining if it is more likely than not to be sustained upon examination by the taxing authorities. As of March 31, 2016 and December 31, 2015, the Company had no uncertain tax positions.

 

Income per Common and Equivalent Shares

 

If dilutive, common equivalent shares (common shares assuming exercise of options and warrants) utilizing the treasury stock method are considered in the presentation of diluted earnings per share. The reconciliation of shares used to determine net income per share is as follows (dollars in thousands):

 

   Three Month Period
Ended March 31,
 
         
   2016   2015 
         
Net income  $2,944   $1,893 
           
Weighted average number of shares - basic   32,888,659    32,333,443 
Shares underlying warrants   175,285    378,780 
Shares underlying options   880,932    1,568,162 
Weighted average number of shares outstanding - diluted   33,944,876    34,280,385 

 

During the three month periods ended March 31, 2016 and 2015, certain options and warrants aggregating 1,064,000 and 75,000 shares, respectively, have been excluded from the calculation of diluted shares, due to the fact that their effect would be anti-dilutive.

 

Estimates and Risks

 

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect reported amounts of certain assets and liabilities, the disclosure of contingent assets and liabilities, and the results of operations during the reporting period. Actual results could differ from these estimates.

 

 

 

The Company utilizes both internal and external sources to evaluate potential current and future liabilities for various commitments and contingencies. In the event that the assumptions or conditions change in the future, the estimates could differ from the original estimates.

 

Several of the Company's accounting policies involve significant judgments, uncertainties and estimations. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. To the extent that actual results differ from management's judgments and estimates, there could be a material adverse effect on the Company. On a continuous basis, the Company evaluates its estimates, including, but not limited to, those estimates related to its allowance for doubtful accounts, inventory reserves, and valuation allowance for the deferred tax assets relating to its NOLs and commitments and contingencies. With respect to accounts receivable, the Company estimates the necessary allowance for doubtful accounts based on both historical and anticipated trends of payment history and the ability of the customer to fulfill its obligations. For inventory, the Company evaluates both current and anticipated sales prices of its products to determine if a write down of inventory to net realizable value is necessary. In determining the Company’s valuation allowance for its deferred tax assets, the Company assesses its ability to generate taxable income in the future.

 

The Company participates in an industry that is highly regulated, and changes in the regulations affecting our business could affect our operating results. Currently the Company purchases virgin hydrochlorofluorocarbon (“HCFC”) and hydrofluorocarbon (“HFC”) refrigerants and reclaimable, primarily HCFC, HFC and chlorofluorocarbon (“CFC”), refrigerants from suppliers and its customers. Effective January 1, 1996, the Clean Air Act (the “Act”) prohibited the production of virgin CFC refrigerants and limited the production of virgin HCFC refrigerants. Effective January 2004, the Act further limited the production of virgin HCFC refrigerants and federal regulations were enacted which established production and consumption allowances for HCFC refrigerants which imposed limitations on the importation of certain virgin HCFC refrigerants. Under the Act, production of certain virgin HCFC refrigerants is scheduled to be phased out during the period 2010 through 2020, and production of all virgin HCFC refrigerants is scheduled to be phased out by 2030. In April 2013, the Environmental Protection Agency (“EPA”) published a final rule providing for the production or importation of 63 million and 51 million pounds of HCFC-22 in 2013 and 2014, respectively. In October 2014, the EPA published a final rule providing further reductions in the production and consumption allowances for virgin HCFC refrigerants for the years 2015 through 2019 (the “Final Rule”). In the Final Rule, the EPA has established a linear draw down for the production or importation of virgin HCFC-22 that started at approximately 22 million pounds in 2015 and reduces by approximately 4.5 million pounds each year and ends at zero in 2020.

 

To the extent that the Company is unable to source sufficient quantities of refrigerants or is unable to obtain refrigerants on commercially reasonable terms or experiences a decline in demand and/or price for refrigerants sold by the Company, the Company could realize reductions in revenue from refrigerant sales, which could have a material adverse effect on its operating results and its financial position.

 

The Company is subject to various legal proceedings. The Company assesses the merit and potential liability associated with each of these proceedings. In addition, the Company estimates potential liability, if any, related to these matters. To the extent that these estimates are not accurate, or circumstances change in the future, the Company could realize liabilities, which could have a material adverse effect on its operating results and its financial position.

 

Impairment of Long-lived Assets

 

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less the cost to sell.

 

Recent Accounting Pronouncements

 

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The guidance also specifies the accounting for some costs to obtain or fulfill a contract with a customer. The new standard also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multiple-element arrangements. For a public entity, the amendments in this Update are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is not permitted. An entity should apply the amendments in ASU 2014-09 either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. The Company is currently evaluating the effects of ASU 2014-09 and therefore cannot estimate the effects, if any, on historical or future revenue recognition at this time.

 

 

 

In April 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs.” ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. For public business entities, the amendments in ASU 2015-03 are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, with early adoption permitted for financial statements that have not been previously issued. An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. Upon transition, an entity is required to comply with the applicable disclosures for a change in an accounting principle. These disclosures include the nature of and reason for the change in accounting principle, the transition method, a description of the prior-period information that has been retrospectively adjusted, and the effect of the change on the financial statement line items (that is, debt issuance cost asset and the debt liability). The adoption of ASU 2015-03 will have no impact on the Company’s results of operations and an immaterial impact on the Company’s balance sheets.

 

In September 2015, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update No. 2015-16, ” Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments”, or ASU 2015-16. This amendment requires the acquirer in a business combination to recognize in the reporting period in which adjustment amounts are determined, any adjustments to provisional amounts that are identified during the measurement period, calculated as if the accounting had been completed at the acquisition date. Prior to the issuance of ASU 2015-16, an acquirer was required to restate prior period financial statements as of the acquisition date for adjustments to provisional amounts. The amendments in ASU 2015-16 are to be applied prospectively upon adoption. The Company adopted ASU 2015-16 in the fourth quarter of 2015. The adoption of the provisions of ASU 2015-16 did not have a material impact on its results of operations or financial position.

 

In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740) - Balance Sheet Classification of Deferred Taxes”. ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in ASU 2015-17 apply to all entities that present a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected. For public business entities, the amendments in ASU 2015-17 are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period.

 

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee also have not significantly changed from previous GAAP. Under ASU 2016-02, a lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term.

 

For finance leases, a lessee is required to do the following: 1. Recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position; 2. Recognize interest on the lease liability separately from amortization of the right-of-use asset in the statement of comprehensive income; and 3. Classify repayments of the principal portion of the lease liability within financing activities and payments of interest on the lease liability and variable lease payments within operating activities in the statement of cash flows.

 

For operating leases, a lessee is required to do the following:1. Recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position; 2. Recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis; and 3. Classify all cash payments within operating activities in the statement of cash flows.

 

In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. These practical expedients relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. An entity that elects to apply the practical expedients will, in effect, continue to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. For public entities, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application of the amendments in this Update is permitted. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on its consolidated financial statements.

 

10 

 

 

Note 2 - Share-based compensation

 

Share-based compensation represents the cost related to share-based awards, typically stock options or stock grants, granted to employees, non-employees, officers and directors. Share-based compensation is measured at grant date, based on the estimated aggregate fair value of the award on the grant date, and such amount is charged to compensation expense on a straight-line basis (net of estimated forfeitures) over the requisite service period. For the three month periods ended March 31, 2016 and 2015, the share-based compensation expense of $11,000 and $77,000, respectively, is reflected in general and administrative expenses in the consolidated Statements of Income.

 

Share-based awards have historically been made as stock options, and recently during the third quarter 2015 as stock grants, issued pursuant to the terms of the Company’s stock option and stock incentive plans, (collectively, the “Plans”), described below. The Plans may be administered by the Board of Directors or the Compensation Committee of the Board or by another committee appointed by the Board from among its members as provided in the Plans. Presently, the Plans are administered by the Company’s Compensation Committee of the Board of Directors. As of March 31, 2016, the Plans authorized the issuance of 6,000,000 shares of the Company’s common stock and, as of March 31, 2016 there were 4,439,023 shares of the Company’s common stock available for issuance for future stock option grants or other stock based awards.

 

Stock option awards, which allow the recipient to purchase shares of the Company’s common stock at a fixed price, are typically granted at an exercise price equal to the Company’s stock price at the date of grant. Typically, the Company’s stock option awards have vested from immediately to two years from the grant date and have had a contractual term ranging from three to ten years.

 

During the three month periods ended March 31, 2016 and 2015, the Company issued options to purchase no shares of common stock and 70,000 shares of common stock, respectively. As of March 31, 2016 there was $4,000 of unrecognized compensation cost related to non-vested previously granted option awards.

 

Effective July 25, 1997, the Company adopted its 1997 Employee Stock Option Plan, which was amended on August 19, 1999, (“1997 Plan”) pursuant to which 2,000,000 shares of common stock were reserved for issuance upon the exercise of options designated as either (i) incentive stock options (“ISOs”) under the Internal Revenue Code of 1986, as amended (the “Code”), or (ii) nonqualified options. ISOs could be granted under the 1997 Plan to employees and officers of the Company. Non-qualified options could be granted to consultants, directors (whether or not they are employees), employees or officers of the Company. Stock appreciation rights could also be issued in tandem with stock options. Effective June 11, 2007, the Company’s ability to grant options or stock appreciation rights under the 1997 Plan expired.

 

Effective September 10, 2004, the Company adopted its 2004 Stock Incentive Plan (“2004 Plan”) pursuant to which 2,500,000 shares of common stock were reserved for issuance (i) upon the exercise of options, designated as either ISOs under the Code or nonqualified options, or (ii) as stock, deferred stock or other stock-based awards. ISOs could be granted under the 2004 Plan to employees and officers of the Company. Non-qualified options, stock, deferred stock or other stock-based awards could be granted to consultants, directors (whether or not they are employees), employees or officers of the Company. Stock appreciation rights could also be issued in tandem with stock options. Effective September 10, 2014, the Company’s ability to grant options or other awards under the 2004 Plan expired.

 

Effective August 27, 2008, the Company adopted its 2008 Stock Incentive Plan (“2008 Plan”) pursuant to which 3,000,000 shares of common stock were reserved for issuance (i) upon the exercise of options, designated as either ISOs under the Code or nonqualified options, or (ii) as stock, deferred stock or other stock-based awards. ISOs may be granted under the 2008 Plan to employees and officers of the Company. Non-qualified options, stock, deferred stock or other stock-based awards may be granted to consultants, directors (whether or not they are employees), employees or officers of the Company. Stock appreciation rights may also be issued in tandem with stock options. Unless the 2008 Plan is sooner terminated, the ability to grant options or other awards under the 2008 Plan will expire on August 27, 2018.

 

ISOs granted under the 2008 Plan may not be granted at a price less than the fair market value of the common stock on the date of grant (or 110% of fair market value in the case of persons holding 10% or more of the voting stock of the Company). Nonqualified options granted under the 2008 Plan may not be granted at a price less than the fair market value of the common stock. Options granted under the 2008 Plan expire not more than ten years from the date of grant (five years in the case of ISOs granted to persons holding 10% or more of the voting stock of the Company).

 

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Effective September 17, 2014, the Company adopted its 2014 Stock Incentive Plan (“2014 Plan”) pursuant to which 3,000,000 shares of common stock were reserved for issuance (i) upon the exercise of options, designated as either ISOs under the Code or nonqualified options, or (ii) as stock, deferred stock or other stock-based awards. ISOs may be granted under the 2014 Plan to employees and officers of the Company. Non-qualified options, stock, deferred stock or other stock-based awards may be granted to consultants, directors (whether or not they are employees), employees or officers of the Company. Stock appreciation rights may also be issued in tandem with stock options. Unless the 2014 Plan is sooner terminated, the ability to grant options or other awards under the 2014 Plan will expire on September 17, 2024.

 

ISOs granted under the 2014 Plan may not be granted at a price less than the fair market value of the common stock on the date of grant (or 110% of fair market value in the case of persons holding 10% or more of the voting stock of the Company). Nonqualified options granted under the 2014 Plan may not be granted at a price less than the fair market value of the common stock. Options granted under the 2014 Plan expire not more than ten years from the date of grant (five years in the case of ISOs granted to persons holding 10% or more of the voting stock of the Company).

 

All stock options have been granted to employees and non-employees at exercise prices equal to or in excess of the market value on the date of the grant.

 

The Company determines the fair value of share based awards at the grant date by using the Black-Scholes option-pricing model, and is incorporating the simplified method to compute expected lives of share based awards with the following weighted-average assumptions:

 

Three Month Period
Ended March 31,
  2016                          2015 
Assumptions          
Dividend yield   -    0%
Risk free interest rate   -    .83%-1.69%
Expected volatility   -    59%-66%
Expected lives   -    3-5 years 

 

A summary of the activity for stock options issued under the Company's Plans for the indicated periods is presented below:

 

Stock Option Plan Totals  Shares   Weighted
Average
Exercise Price
 
Outstanding at December 31, 2014   3,280,874   $1.98 
-Cancelled   (132,500)  $3.72 
-Exercised   (679,291)  $1.65 
-Granted   164,506   $3.28 
Outstanding at December 31, 2015   2,633,589   $2.06 
-Exercised   (120,125)  $1.36 
Outstanding at March 31, 2016   2,513,464   $2.09 

 

The following is the weighted average contractual life in years and the weighted average exercise price at March 31, 2016 of:

 

   Number of   Weighted Average
Remaining
  Weighted Average 
   Options   Contractual Life  Exercise Price 
Options outstanding   2,513,464   1.9 years  $2.09 
Options vested   2,505,130   1.9 years  $2.09 

 

The following is the intrinsic value at March 31, 2016 of:

 

Options outstanding  $3,050,000 
Options exercised in 2016  $253,000 

 

The intrinsic value of options exercised during the year ended December 31, 2015 was $1,309,000.

 

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Note 3 - Debt

 

Bank Credit Line

 

On June 22, 2012, a subsidiary of Hudson entered into a Revolving Credit, Term Loan and Security Agreement (the “PNC Facility”) with PNC Bank, National Association, as agent (“Agent” or “PNC”), and such other lenders as may thereafter become a party to the PNC Facility. Under the terms of the PNC Facility, as amended by the First Amendment to the PNC Facility, dated February 15, 2013, Hudson may borrow up to a maximum of $40,000,000 consisting of a term loan in the principal amount of $4,000,000 and revolving loans in a maximum amount up to $36,000,000. Amounts borrowed under the PNC Facility may be used by Hudson for working capital needs and to reimburse drawings under letters of credit. At March 31, 2016, total borrowings under the PNC Facility were approximately $29,808,000, and there was approximately $10,200,000 available to borrow under the revolving line of credit. The effective interest rate under the PNC Facility was 4.00% at March 31, 2016.

 

Interest on loans under the PNC Facility is payable in arrears on the first day of each month with respect to loans bearing interest at the domestic rate (as set forth in the PNC Facility) and at the end of each interest period with respect to loans bearing interest at the Eurodollar Rate (as defined in the PNC Facility) or, for Eurodollar Rate Loans (as defined in the PNC Facility) with an interest period in excess of three months, at the earlier of (a) each three months from the commencement of such Eurodollar Rate Loan or (b) the end of the interest period. Interest charges with respect to loans are computed on the actual principal amount of loans outstanding during the month at a rate per annum equal to (A) with respect to Domestic Rate Loans (as defined in the PNC Facility), the sum of the Alternate Base Rate (as defined in the PNC Facility) plus one half of one percent (.50%) and (B) with respect to Eurodollar Rate Loans, the sum of the Eurodollar Rate plus two and one quarter of one percent (2.25%).

 

Hudson granted to PNC, for itself, and as agent for such other lenders as may thereafter become a lender under the PNC Facility, a security interest in Hudson’s receivables, intellectual property, general intangibles, inventory and certain other assets.

 

The PNC Facility contains certain financial and non-financial covenants relating to Hudson, including limitations on Hudson’s ability to pay dividends on common stock or preferred stock, and also includes certain events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to other obligations, events of bankruptcy and insolvency, certain ERISA events, judgments in excess of specified amounts, impairments to guarantees and a change of control. The PNC Facility contains a financial covenant to maintain at all times a Fixed Charge Coverage Ratio of not less than 1.10 to 1.00, tested quarterly on a rolling twelve month basis. Fixed Charge Coverage Ratio is defined in the PNC Facility, with respect to any fiscal period, as the ratio of (a) EBITDA of Hudson for such period, minus unfinanced capital expenditures (as defined in the PNC Facility) made by Hudson during such period, minus the aggregate amount of cash taxes paid by Hudson during such period, minus the aggregate amount of dividends and distributions made by Hudson during such period, minus the aggregate amount of payments made with cash by Hudson to satisfy soil sampling and reclamation related to environmental cleanup at the Company’s former Hillburn, NY facility during such period (to the extent not already included in the calculation of EBITDA as determined by the Agent) to (b) the aggregate amount of all principal payments due and/or made, except principal payments related to outstanding revolving advances with regard to all funded debt (as defined in the PNC Facility) of Hudson during such period, plus the aggregate interest expense of Hudson during such period. EBITDA as defined in the PNC Facility shall mean for any period the sum of (i) earnings before interest and taxes for such period plus (ii) depreciation expenses for such period, plus (iii) amortization expenses for such period, plus (iv) non-cash charges.

 

On October 25, 2013, the Company entered into the Second Amendment to the PNC facility (the “Second PNC Amendment”) which, among other things, waived the requirement to comply with the minimum fixed charge coverage ratio covenant of 1.10 to 1.00 for the fiscal quarter ended September 30, 2013, under the PNC Facility, and suspended the minimum fixed charge ratio covenant until the quarterly period ended March 31, 2015.

 

On July 2, 2014, the Company entered into the Third Amendment to the PNC Facility (the “Third PNC Amendment”) which, among other things, extended the term of PNC Facility. Pursuant to the Third PNC Amendment, which was effective June 30, 2014, the Termination Date of the PNC Facility (as defined in the PNC Facility) was extended to June 30, 2018.

 

On July 1, 2015, the Company entered into the Fourth Amendment to the PNC Facility (the “Fourth PNC Amendment”). The Fourth PNC Amendment redefined the “Revolving Interest Rate” as well as the “Term Loan Rate” (as defined in the PNC Facility) as follows:

 

“Revolving Interest Rate” shall mean an interest rate per annum equal to (a) the sum of the Alternate Base Rate (as defined in the PNC Facility) plus one half of one percent (.50%) with respect to Domestic Rate Loans and (b) the sum of the Eurodollar Rate plus two and one quarter of one percent (2.25%) with respect to the Eurodollar Rate Loans.

 

“Term Loan Rate” shall mean an interest rate per annum equal to (a) the sum of the Alternate Base Rate plus one half of one percent (.50%) with respect to the Domestic Rate Loans and (b) the sum of the Eurodollar Rate plus two and one quarter of one percent (2.25%) with respect to Eurodollar Rate Loans.

 

On April 8, 2016, the Company entered into the Fifth Amendment to the PNC Facility (the “Fifth PNC Amendment”). Pursuant to the Fifth PNC Amendment, the Maximum Loan Amount (as defined in the PNC Facility) has been increased from $40,000,000 to $50,000,000, and the Maximum Revolving Advance Amount (as defined in the PNC Facility) has been increased from $36,000,000 to $46,000,000. Additionally, pursuant to the Fifth PNC Amendment the Termination Date of the Facility (as defined in the PNC Facility) has been extended to June 30, 2020.

 

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The Company was in compliance with all covenants, under the PNC Facility as of March 31, 2016. The Company’s ability to comply with these covenants in future quarters may be affected by events beyond the Company’s control, including general economic conditions, weather conditions, regulations and refrigerant pricing. Although we expect to remain in compliance with all covenants in the PNC Facility, as amended, depending on our future operating performance and general economic conditions, we cannot make any assurance that we will continue to be in compliance.

 

The commitments under the PNC Facility will expire and the full outstanding principal amount of the loans, together with accrued and unpaid interest, are due and payable in full on June 30, 2020, unless the commitments are terminated for any reason or the outstanding principal amount of the loans are accelerated sooner following an event of default.

 

Note 4 - Acquisitions

 

On November 5, 2014 the Company purchased certain assets from Polar Technologies, LLC (“Polar”) related to its refrigerant reclamation business and facilities in Nashville, Tennessee; Ontario, California; and San Juan, Puerto Rico; hiring approximately thirty-two Polar employees associated with the business. The purchase price for this acquisition was $8,035,000. A portion of the purchase price is to be paid in the future pursuant to the purchase agreement. The preliminary asset allocation reflected in the December 31, 2014 financial statements was approximately $5,435,000 of tangible assets, approximately $2,335,000 of intangible assets, and approximately $265,000 of goodwill. The intangible assets will be amortized over a period of 2 to 10 years. The goodwill recognized as part of the acquisition, is deductible for tax purposes.

 

As of December 31, 2015 the valuation and allocation of the purchase price for Polar has been finalized resulting in an increase in tangible assets of $165,000, as well as an increase in goodwill of $170,000 and a decrease in intangible assets of $335,000. This final valuation has been reflected in the December 31, 2015 financial statements.

 

The results of the Polar operations are included in the Company’s consolidated statement of operations from the date of acquisition and are not material to the Company’s financial position or results of operations.

 

On January 16, 2015, the Company acquired certain assets of a supplier of refrigerants and compressed gases, and also hired three employees associated with the business. The purchase price for this acquisition was $2,424,000 cash paid at closing and the assumption of a liability of $20,000, and a maximum of an additional $3,000,000 earn-out. The preliminary asset allocation was approximately $1,606,000 of tangible assets, approximately $1,500,000 of intangible assets, and approximately $2,338,000 of goodwill.

 

As of December 31, 2015 the valuation and allocation of the purchase price for this acquisition has been finalized. As part of that process it has been determined that the earn-out payable that had been previously recorded at the maximum earn out of $3,000,000 per the purchase agreement was overstated by approximately $1,000,000. This adjustment to the earn-out payable resulted in lowering the purchase price from approximately $5,400,000 to approximately $4,400,000. The final valuation resulted in a reduction in goodwill by approximately $1,900,000, and increase in intangible assets of approximately $800,000 and an increase in current assets of approximately $100,000. This final valuation as well as the respective changes in the amortization of intangibles has been reflected in the December 31, 2015 financial statements.

 

The adjusted earn-out payable of approximately $2,000,000 consists of approximately $1,100,000 for the fiscal year ended December 31, 2015 and approximately $900,000 for the fiscal year ending December 31, 2016. For the fiscal year ended December 31, 2015 the actual earn-out was approximately $800,000 resulting in a year end adjustment to reduce the payable by approximately $300,000 which has been reflected in the December 31, 2015 statements of operations as Other Income. As of December 31, 2015 approximately $445,000 of the 2015 earn-out has been paid and the remaining balance of $371,000 is recorded as a current liability on the December 31, 2015 balance sheet.

 

The earn out payable for the fiscal year ending December 31, 2016 of approximately $900,000 has been recorded in other current liabilities on the December 31, 2015 balance sheet. As of March 31, 2016 there is no change in the estimated earnout.

 

The intangible assets are being amortized over a period ranging from two to ten years. The goodwill recognized as part of the acquisition will be deductible for tax purposes. The transaction also provides for additional employee compensation for years 2017 through 2019, based on certain revenue performance. The total additional employee compensation, if any, cannot exceed $3,000,000.

 

The results of the acquired business operations are included in the Company’s consolidated statements of operations from the date of acquisition, and are not material to the Company’s financial position or results of operations.

 

 
 

 

Pro Forma Information

 

Pro forma revenues and results of operations as if the businesses had been acquired on January 1, 2014 are not presented, as the acquisitions are not material to our financial position or our results of operations.

 

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Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Certain statements, contained in this section and elsewhere in this Form 10-Q, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve a number of known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, changes in the laws and regulations affecting the industry, changes in the demand and price for refrigerants (including unfavorable market conditions adversely affecting the demand for, and the price of refrigerants), the Company's ability to source refrigerants, regulatory and economic factors, seasonality, competition, litigation, the nature of supplier or customer arrangements that become available to the Company in the future, adverse weather conditions, possible technological obsolescence of existing products and services, possible reduction in the carrying value of long-lived assets, estimates of the useful life of its assets, potential environmental liability, customer concentration, the ability to obtain financing, any delays or interruptions in bringing products and services to market, the timely availability of any requisite permits and authorizations from governmental entities and third parties as well as factors relating to doing business outside the United States, including changes in the laws, regulations, policies, and political, financial and economic conditions, including inflation, interest and currency exchange rates, of countries in which the Company may seek to conduct business, the Company’s ability to successfully integrate any assets it acquires from third parties into its operations, and other risks detailed in the Company’s Form 10-K for the year ended December 31, 2015. and in the Company’s other subsequent filings with the Securities and Exchange Commission (“SEC”). The words “believe”, “expect”, “anticipate”, “may”, “plan”, “should” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.

 

Critical Accounting Policies

 

The Company's discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Several of the Company's accounting policies involve significant judgments, uncertainties and estimations. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. To the extent that actual results differ from management's judgments and estimates, there could be a material adverse effect on the Company. On a continuous basis, the Company evaluates its estimates, including, but not limited to, those estimates related to its allowance for doubtful accounts, inventory reserves, and valuation allowance for the deferred tax assets relating to its net operating loss carry forwards (“NOLs”) and commitments and contingencies. With respect to accounts receivable, the Company estimates the necessary allowance for doubtful accounts based on both historical and anticipated trends of payment history and the ability of the customer to fulfill its obligations. For inventory, the Company evaluates both current and anticipated sales prices of its products to determine if a write down of inventory to net realizable value is necessary. In determining the Company’s valuation allowance for its deferred tax assets, the Company assesses its ability to generate taxable income in the future. Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in business combinations accounted for under the purchase method of accounting. The Company tests for any impairment of goodwill annually. Intangibles with determinable lives are amortized over the estimated useful lives of the assets currently ranging from 2 to 10 years. The Company reviews these useful lives annually to determine that they reflect future realizable value. The Company utilizes both internal and external sources to evaluate potential current and future liabilities for various commitments and contingencies. In the event that the assumptions or conditions change in the future, the estimates could differ from the original estimates.

 

Overview

 

Sales of refrigerants continue to represent a significant portion of the Company’s revenues. The Company’s refrigerant sales are primarily HCFC and HFC based refrigerants and to a lesser extent CFC based refrigerants that are no longer manufactured. Currently the Company purchases virgin HCFC and HFC refrigerants and reclaimable HCFC, HFC and CFC refrigerants from suppliers and its customers. Effective January 1, 1996, the Clean Air Act (the “Act”) prohibited the production of virgin CFC refrigerants and limited the production of virgin HCFC refrigerants, which production was further limited in January 2004. Federal regulations enacted in January 2004 established production and consumption allowances for HCFCs and imposed limitations on the importation of certain virgin HCFC refrigerants. Under the Act, production of certain virgin HCFC refrigerants is scheduled to be phased out during the period 2010 through 2020, and production of all virgin HCFC refrigerants is scheduled to be phased out by 2030. In April 2013 the EPA published a final rule providing for the production or importation of 63 million and 51 million pounds of HCFC-22 in 2013 and 2014, respectively. In October 2014, the EPA published the Final Rule providing further reductions in the production and consumption allowances for virgin HCFC refrigerants for the years 2015 through 2019. In the Final Rule, the EPA has established a linear annual phase down schedule for the production or importation of virgin HCFC-22 that started at approximately 22 million pounds in 2015 and is being reduced by approximately 4.5 million pounds each year and ends at zero in 2020.

 

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The Company has created and developed a service offering known as RefrigerantSide® Services. RefrigerantSide® Services are sold to contractors and end-users whose refrigeration systems are used in commercial air conditioning and industrial processing. These services are offered in addition to refrigerant sales and the Company's traditional refrigerant management services, which consist primarily of reclamation of refrigerants. The Company has created a network of service depots that provide a full range of the Company's RefrigerantSide® Services to facilitate the growth and development of its service offerings.

 

The Company focuses its sales and marketing efforts for its RefrigerantSide® Services on customers who the Company believes most readily appreciate and understand the value that is provided by its RefrigerantSide® Services offering. In pursuing its sales and marketing strategy, the Company offers its RefrigerantSide® Services to customers in the following industries: petrochemical, pharmaceutical, industrial power, manufacturing, commercial facility and property management and maritime. The Company may incur additional expenses as it further develops and markets its RefrigerantSide® Services offering.

 

Results of Operations

 

Three month period ended March 31, 2016 as compared to the three month period ended March 31, 2015

 

Revenues for the three month period ended March 31, 2016 were $28,167,000, an increase of $6,064,000 or 27% from the $22,103,000 reported during the comparable 2015 period. The increase in revenues was attributable to an increase in refrigerant revenues of $6,162,000, offset slightly by a decrease in RefrigerantSide® Services revenues of $98,000. The increase in refrigerant revenue is primarily related to an increase in the selling price per pound of certain refrigerants sold, which accounted for an increase in revenues of $3,395,000, as well as an increase in the number of pounds of certain refrigerants sold, which accounted for an increase in revenues of $2,767,000. The decrease in RefrigerantSide® Services was primarily attributable to a decrease in the number of jobs completed compared to the same period in 2015, offset by an increase in the average selling price per job completed in the first three months of 2016 compared to the first three months of 2015.

 

Cost of sales for the three month period ended March 31, 2016 was $20,645,000 or 73% of sales. The cost of sales for the three month period ended March 31, 2015 was $16,578,000 or 75% of sales. The decrease in the cost of sales percentage from 75% for the three month period ended March 31, 2015 to 73% for the three month period ended March 31, 2016 is primarily due to the increase in the selling price per pound of certain refrigerants sold for the three month period ended March 31, 2016 compared to the same period in 2015.

 

Operating expenses for the three month period ended March 31, 2016 were $2,503,000, an increase of $248,000 from the $2,255,000 reported during the comparable 2015 period. The increase in operating expenses is due to an increase in selling expenses of $157,000, primarily due to selling payroll and advertising expenses, as well as an increase in general and administrative expenses of $91,000, primarily related to increases in professional fees.

 

Interest expense for the three month period ended March 31, 2016 was $271,000, compared to the $207,000 reported during the comparable 2015 period.

 

Income tax expense for the three month period ended March 31, 2016 was $1,804,000 compared to income tax expense for the three month period ended March 31, 2015 of $1,170,000. For 2016 and 2015 the income tax expense was for federal and state income tax at statutory rates applied to the pre-tax income.

 

Net income for the three month period ended March 31, 2016 was $2,944,000, an increase of $1,051,000 from the $1,893,000 net income reported during the comparable 2015 period, primarily due to the increase in revenues partially offset by an increase in operating expenses and income tax expense.

 

Liquidity and Capital Resources

 

At March 31, 2016, the Company had working capital, which represents current assets less current liabilities, of $43,531,000, an increase of $5,022,000 from the working capital of $38,509,000 at December 31, 2015. The increase in working capital is primarily attributable to net income.

 

Inventory and trade receivables are principal components of current assets. At March 31, 2016, the Company had inventories of $55,284,000, a decrease of $6,613,000 from $61,897,000 at December 31, 2015. The decrease in the inventory balance is primarily due the timing and availability of inventory purchases and the sale of refrigerants. The Company's ability to sell and replace its inventory on a timely basis and the prices at which it can be sold are subject, among other things, to current market conditions and the nature of supplier or customer arrangements and the Company's ability to source CFC based refrigerants (which are no longer being produced), HCFC refrigerants (which are currently being phased down leading to a full phase out of virgin production), or non-CFC based refrigerants. At March 31, 2016, the Company had trade receivables, net of allowance for doubtful accounts, of $15,840,000, an increase of $11,426,000 from $4,414,000 at December 31, 2015. The Company's trade receivables are concentrated with various wholesalers, brokers, contractors and end-users within the refrigeration industry that are primarily located in the continental United States.

 

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The Company has historically financed its working capital requirements through cash flows from operations, the issuance of debt and equity securities, and bank borrowings.

 

Net cash used by operating activities for the three month period ended March 31, 2016, was $5,723,000 compared with net cash used in operating activities of $812,000 for the comparable 2015 period. Net cash used in operating activities for the 2016 period was primarily attributable to an increase in trade accounts receivable and prepaid and other assets, as well as a decrease in accounts payable and accrued expenses, offset in part by net income and the utilization of the deferred tax asset, as well a decrease in inventory.

 

Net cash used by investing activities for the three month period ended March 31, 2016, was $133,000 compared with net cash used by investing activities of $2,483,000 for the comparable 2015 period. The net cash used by investing activities for the 2016 period was primarily related to investment in general purpose equipment for the Company’s Champaign, Illinois facility. The net cash used by investing activities for the 2015 period was primarily related to the acquisition of a refrigerant and compressed gases supplier, as well as investment in general purpose equipment for the Company’s Champaign, Illinois facility.

 

Net cash provided by financing activities for the three month period ended March 31, 2016, was $5,765,000 compared with net cash provided by financing activities of $2,821,000 for the comparable 2015 period. The net cash provided by financing activities for the 2016 period was primarily due to the proceeds from short term borrowings, partially offset by the repayment of long term debt.

 

At March 31, 2016, the Company had cash and cash equivalents of $1,167,000. The Company continues to assess its capital expenditure needs. The Company may, to the extent necessary, continue to utilize its cash balances to purchase equipment primarily for its operations. The Company estimates that the total capital expenditures for 2016 will be approximately $1,800,000.

 

The following is a summary of the Company's significant contractual cash obligations for the periods indicated that existed as of March 31, 2016 (in 000’s):

 

   Twelve Month Period Ended March 31,     
  2017   2018   2019   2020   2021   Total 
Long and short term debt and capital  lease obligations:                    
                         
Principal  $26,141   $122   $4,078   $11   $1   $30,353 
Estimated interest (1)   914    902    807    0    0    2,623 
Operating leases   1,144    803    167    14    7    2,135 
Acquisition earn out /License payable   1,197    0    0    0    0    1,197 
                               
Total contractual cash obligations  $29,396   $1,827   $5,052   $25   $8   $36,308 

 

 

(1)  The estimated future interest payments on all debt other than revolving debt are based on the respective interest rates applied to the declining principal balances on each of the notes.

 

On June 22, 2012, a subsidiary of Hudson entered into a Revolving Credit, Term Loan and Security Agreement (the “PNC Facility”) with PNC Bank, National Association, as agent (“Agent” or “PNC”), and such other lenders as may thereafter become a party to the PNC Facility. Under the terms of the PNC Facility, as amended by the First Amendment to the PNC Facility, dated February 15, 2013, Hudson may borrow up to a maximum of $40,000,000 consisting of a term loan in the principal amount of $4,000,000 and revolving loans in a maximum amount up to $36,000,000. Amounts borrowed under the PNC Facility may be used by Hudson for working capital needs and to reimburse drawings under letters of credit. At March 31, 2016, total borrowings under the PNC Facility were approximately $29,808,000, and there was approximately $10,200,000 available to borrow under the revolving line of credit. The effective interest rate under the PNC Facility was 4.00% at March 31, 2016.

 

Interest on loans under the PNC Facility is payable in arrears on the first day of each month with respect to loans bearing interest at the domestic rate (as set forth in the PNC Facility) and at the end of each interest period with respect to loans bearing interest at the Eurodollar Rate (as defined in the PNC Facility) or, for Eurodollar Rate Loans (as defined in the PNC Facility) with an interest period in excess of three months, at the earlier of (a) each three months from the commencement of such Eurodollar Rate Loan or (b) the end of the interest period. Interest charges with respect to loans are computed on the actual principal amount of loans outstanding during the month at a rate per annum equal to (A) with respect to Domestic Rate Loans (as defined in the PNC Facility), the sum of the Alternate Base Rate (as defined in the PNC Facility) plus one half of one percent (.50%) and (B) with respect to Eurodollar Rate Loans, the sum of the Eurodollar Rate plus two and one quarter of one percent (2.25%).

 

17 

 

 

Hudson granted to PNC, for itself, and as agent for such other lenders as may thereafter become a lender under the PNC Facility, a security interest in Hudson’s receivables, intellectual property, general intangibles, inventory and certain other assets.

 

The PNC Facility contains certain financial and non-financial covenants relating to Hudson, including limitations on Hudson’s ability to pay dividends on common stock or preferred stock, and also includes certain events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to other obligations, events of bankruptcy and insolvency, certain ERISA events, judgments in excess of specified amounts, impairments to guarantees and a change of control. The PNC Facility contains a financial covenant to maintain at all times a Fixed Charge Coverage Ratio of not less than 1.10 to 1.00, tested quarterly on a rolling twelve month basis. Fixed Charge Coverage Ratio is defined in the PNC Facility, with respect to any fiscal period, as the ratio of (a) EBITDA of Hudson for such period, minus unfinanced capital expenditures (as defined in the PNC Facility) made by Hudson during such period, minus the aggregate amount of cash taxes paid by Hudson during such period, minus the aggregate amount of dividends and distributions made by Hudson during such period, minus the aggregate amount of payments made with cash by Hudson to satisfy soil sampling and reclamation related to environmental cleanup at the Company’s former Hillburn, NY facility during such period (to the extent not already included in the calculation of EBITDA as determined by the Agent) to (b) the aggregate amount of all principal payments due and/or made, except principal payments related to outstanding revolving advances with regard to all funded debt (as defined in the PNC Facility) of Hudson during such period, plus the aggregate interest expense of Hudson during such period. EBITDA as defined in the PNC Facility shall mean for any period the sum of (i) earnings before interest and taxes for such period plus (ii) depreciation expenses for such period, plus (iii) amortization expenses for such period, plus (iv) non-cash charges.

 

On October 25, 2013, the Company entered into the Second Amendment to the PNC facility (the “Second PNC Amendment”) which, among other things, waived the requirement to comply with the minimum fixed charge coverage ratio covenant of 1.10 to 1.00 for the fiscal quarter ended September 30, 2013, under the PNC Facility, and suspended the minimum fixed charge ratio covenant until the quarterly period ended March 31, 2015.

 

On July 2, 2014, the Company entered into the Third Amendment to the PNC Facility (the “Third PNC Amendment”) which, among other things, extended the term of PNC Facility. Pursuant to the Third PNC Amendment, which was effective June 30, 2014, the Termination Date of the PNC Facility (as defined in the PNC Facility) was extended to June 30, 2018.

 

On July 1, 2015, the Company entered into the Fourth Amendment to the PNC Facility (the “Fourth PNC Amendment”). The Fourth PNC Amendment redefined the “Revolving Interest Rate” as well as the “Term Loan Rate” (as defined in the PNC Facility) as follows:

 

“Revolving Interest Rate” shall mean an interest rate per annum equal to (a) the sum of the Alternate Base Rate (as defined in the PNC Facility) plus one half of one percent (.50%) with respect to Domestic Rate Loans and (b) the sum of the Eurodollar Rate plus two and one quarter of one percent (2.25%) with respect to the Eurodollar Rate Loans.

 

“Term Loan Rate” shall mean an interest rate per annum equal to (a) the sum of the Alternate Base Rate plus one half of one percent (.50%) with respect to the Domestic Rate Loans and (b) the sum of the Eurodollar Rate plus two and one quarter of one percent (2.25%) with respect to Eurodollar Rate Loans.

 

 On April 8, 2016, the Company entered into the Fifth Amendment to the PNC Facility (the “Fifth PNC Amendment”). Pursuant to the Fifth PNC Amendment, the Maximum Loan Amount (as defined in the PNC Facility) has been increased from $40,000,000 to $50,000,000, and the Maximum Revolving Advance Amount (as defined in the PNC Facility) has been increased from $36,000,000 to $46,000,000. Additionally, pursuant to the Fifth PNC Amendment the Termination Date of the Facility (as defined in the PNC Facility) has been extended to June 30, 2020. 

 

The Company was in compliance with all covenants, under the PNC Facility as of March 31, 2016. The Company’s ability to comply with these covenants in future quarters may be affected by events beyond the Company’s control, including general economic conditions, weather conditions, regulations and refrigerant pricing. Although we expect to remain in compliance with all covenants in the PNC Facility, as amended, depending on our future operating performance and general economic conditions, we cannot make any assurance that we will continue to be in compliance.

 

The commitments under the PNC Facility will expire and the full outstanding principal amount of the loans, together with accrued and unpaid interest, are due and payable in full on June 30, 2020, unless the commitments are terminated for any reason or the outstanding principal amount of the loans are accelerated sooner following an event of default.

 

18 

 

 

Inflation

 

Inflation has not historically had a material impact on the Company's operations.

 

Reliance on Suppliers and Customers

 

The Company participates in an industry that is highly regulated, and changes in the regulations affecting our business could affect our operating results. Currently the Company purchases virgin HCFC and HFC refrigerants and reclaimable, primarily HCFC and CFC, refrigerants from suppliers and its customers. Under the Act the phase-down of future production of certain virgin HCFC refrigerants commenced in 2010 and is scheduled to be fully phased out by the year 2020, and production of all virgin HCFC refrigerants is scheduled to be phased out by the year 2030. To the extent that the Company is unable to source sufficient quantities of refrigerants or is unable to obtain refrigerants on commercially reasonable terms or experiences a decline in demand and/or price for refrigerants sold by it, the Company could realize reductions in revenue from refrigerant sales, which could have a material adverse effect on the Company’s operating results and financial position.

 

For the three month period ended March 31, 2016, two customers each accounted for 10% or more of the Company’s revenues and, in the aggregate these two customers accounted for 44% of the Company’s revenues. At March 31, 2016, there were $5,085,000 in outstanding receivables from these customers.

 

For the three month period ended March 31, 2015, two customers each accounted for 10% or more of the Company’s revenues and, in the aggregate these two customers accounted for 42% of the Company’s revenues. At March 31, 2015, there were $2,325,000 in outstanding receivables from these customers.

 

The loss of a principal customer or a decline in the economic prospects of and/or a reduction in purchases of the Company's products or services by any such customer could have a material adverse effect on the Company's operating results and financial position.

 

Seasonality and Weather Conditions and Fluctuations in Operating Results

 

The Company's operating results vary from period to period as a result of weather conditions, requirements of potential customers, non-recurring refrigerant and service sales, availability and price of refrigerant products (virgin or reclaimable), changes in reclamation technology and regulations, timing in introduction and/or retrofit or replacement of refrigeration equipment, the rate of expansion of the Company's operations, and by other factors. The Company's business is seasonal in nature with peak sales of refrigerants occurring in the first half of each year. During past years, the seasonal decrease in sales of refrigerants has resulted in losses particularly in the fourth quarter of the year. In addition, to the extent that there is unseasonably cool weather throughout the spring and summer months, which would adversely affect the demand for refrigerants, there would be a corresponding negative impact on the Company. Delays or inability in securing adequate supplies of refrigerants at peak demand periods, lack of refrigerant demand, increased expenses, declining refrigerant prices and a loss of a principal customer could result in significant losses. There can be no assurance that the foregoing factors will not occur and result in a material adverse effect on the Company's financial position and significant losses. The Company believes that to a lesser extent there is a similar seasonal element to RefrigerantSide® Service revenues as refrigerant sales. The Company is continuing to assess its RefrigerantSide® Service revenues seasonal trend.

 

Recent Accounting Pronouncements

 

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The guidance also specifies the accounting for some costs to obtain or fulfill a contract with a customer. The new standard also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multiple-element arrangements. For a public entity, the amendments in this Update are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is not permitted. An entity should apply the amendments in ASU 2014-09 either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. The Company is currently evaluating the effects of ASU 2014-09 and therefore cannot estimate the effects, if any, on historical or future revenue recognition at this time.

 

19 

 

 

In April 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs.” ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. For public business entities, the amendments in ASU 2015-03 are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, with early adoption permitted for financial statements that have not been previously issued. An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. Upon transition, an entity is required to comply with the applicable disclosures for a change in an accounting principle. These disclosures include the nature of and reason for the change in accounting principle, the transition method, a description of the prior-period information that has been retrospectively adjusted, and the effect of the change on the financial statement line items (that is, debt issuance cost asset and the debt liability). The adoption of ASU 2015-03 will have no impact on the Company’s results of operations and an immaterial impact on the Company’s balance sheets.

 

In September 2015, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update No. 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments”, or ASU 2015-16. This amendment requires the acquirer in a business combination to recognize in the reporting period in which adjustment amounts are determined, any adjustments to provisional amounts that are identified during the measurement period, calculated as if the accounting had been completed at the acquisition date. Prior to the issuance of ASU 2015-16, an acquirer was required to restate prior period financial statements as of the acquisition date for adjustments to provisional amounts. The amendments in ASU 2015-16 are to be applied prospectively upon adoption. The Company adopted ASU 2015-16 in the fourth quarter of 2015. The adoption of the provisions of ASU 2015-16 did not have a material impact on its results of operations or financial position.

 

In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740) - Balance Sheet Classification of Deferred Taxes.” ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in ASU 2015-17 apply to all entities that present a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected. For public business entities, the amendments in ASU 2015-17 are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period.

 

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee also have not significantly changed from previous GAAP. Under ASU 2016-02, a lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term.

 

For finance leases, a lessee is required to do the following: 1. Recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position; 2. Recognize interest on the lease liability separately from amortization of the right-of-use asset in the statement of comprehensive income; and 3. Classify repayments of the principal portion of the lease liability within financing activities and payments of interest on the lease liability and variable lease payments within operating activities in the statement of cash flows.

 

For operating leases, a lessee is required to do the following:1. Recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position; 2. Recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis; and 3. Classify all cash payments within operating activities in the statement of cash flows.

 

In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. These practical expedients relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. An entity that elects to apply the practical expedients will, in effect, continue to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. For public entities, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application of the amendments in this Update is permitted. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on its consolidated financial statements.

 

20 

 

 

Item 3 - Quantitative and Qualitative Disclosures about Market Risk

 

Interest Rate Sensitivity

 

We are exposed to market risk from fluctuations in interest rates on the PNC Facility. The PNC Facility is a $50,000,000 secured facility. Interest on loans under the PNC Facility is payable in arrears on the first day of each month with respect to loans bearing interest at the domestic rate (as set forth in the PNC Facility) and at the end of each interest period with respect to loans bearing interest at the Eurodollar rate (as set forth in the PNC Facility) or, for Eurodollar rate loans with an interest period in excess of three months, at the earlier of (a) each three months from the commencement of such Eurodollar rate loan or (b) the end of the interest period. As of March 31, 2016 interest charges with respect to loans are computed on the actual principal amount of loans outstanding during the month at a rate per annum equal to (A) with respect to Domestic Rate Loans (as defined in the PNC Facility), the sum of the Alternate Base Rate (as defined in the PNC Facility) plus one half of one percent (.50%) and (B) with respect to Eurodollar Rate Loans, the sum of the Eurodollar Rate plus two and one quarter of one percent (2.25%). The outstanding balance on the PNC Facility as of March 31, 2016 was $29,808,000. Future interest rate changes on our borrowing under the PNC Facility may have an impact on our consolidated results of operations.

 

Refrigerant Market

 

We are also exposed to market risk from fluctuations in the demand, price and availability of refrigerants. To the extent that the Company is unable to source sufficient quantities of refrigerants or is unable to obtain refrigerants on commercially reasonable terms, or experiences a decline in demand and/or price for refrigerants sold by the Company, the Company could realize reductions in revenue from refrigerant sales, or inventory write-downs, which could have a material adverse effect on our consolidated results of operations.

 

Item 4 - Controls and Procedures

 

Disclosure Controls and Procedures

 

The Company, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Because of the inherent limitations in all control systems, any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Furthermore, the Company’s controls and procedures can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control and misstatements due to error or fraud may occur and not be detected on a timely basis.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended March 31, 2016 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

21 

 

 

PART II – OTHER INFORMATION

 

Item 1 - Legal Proceedings

 

For information regarding pending legal matters, refer to the Legal Proceedings Section in Part I, Item 3 of the Company’s Form 10-K for the year ended December 31, 2015. There have been no material changes to such matters during the quarter ended March 31, 2016.

 

Item 6 - Exhibits

 

Exhibit
Number
  Description
     
10.1   Fifth Amendment to Revolving Credit, Term Loan and Security Agreement between Hudson Technologies Company, and PNC Bank, National Association, dated April 8, 2016 (1)
10.2   Second Amended and Restated Revolving Credit Note, dated April 8, 2016, by Hudson Technologies Company as borrower in favor of PNC (1)
10.3   Guarantors’ Ratification dated April 8, 2016, by the Company and Hudson Holdings, Inc. (1)
31.1   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002     
32.2   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                             
101   Interactive Data Files Pursuant to Rule 405 of Regulation S-T

 

 

(1) Incorporated by reference to the comparable exhibit filed with the Company’s Current Report on Form 8-K filed April 14, 2016.

 

22 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    HUDSON TECHNOLOGIES, INC.
         
  By: /s/ Kevin J. Zugibe   May 6, 2016
    Kevin J. Zugibe   Date
    Chairman and    
    Chief Executive Officer    

 

  By: /s/ James R. Buscemi   May 6, 2016
    James R. Buscemi   Date
    Chief Financial Officer    

 

23 

 

 

Index to Exhibits

 

Exhibit
Number
  Description
     
10.1   Fifth Amendment to Revolving Credit, Term Loan and Security Agreement between Hudson Technologies Company, and PNC Bank, National Association, dated April 8, 2016 (1)
10.2   Second Amended and Restated Revolving Credit Note, dated April 8, 2016, by Hudson Technologies Company as borrower in favor of PNC (1)
10.3   Guarantors’ Ratification dated April 8, 2016, by the Company and Hudson Holdings, Inc. (1)
31.1   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002     
32.2   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                             
101   Interactive Data Files Pursuant to Rule 405 of Regulation S-T

 

 

 

(1) Incorporated by reference to the comparable exhibit filed with the Company’s Current Report on Form 8-K filed April 14, 2016.

 

24 

 

Exhibit 31.1:

 

Hudson Technologies, Inc.

Certification of Principal Executive Officer

 

I, Kevin J. Zugibe, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Hudson Technologies, Inc.;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

  Date: May 6, 2016

 

  /s/ Kevin J. Zugibe
  Kevin J. Zugibe
  Chief Executive Officer and
  Chairman of the Board

 

 

 

Exhibit 31.2:

 

Hudson Technologies, Inc.

Certification of Principal Financial Officer

 

I, James R. Buscemi, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Hudson Technologies, Inc.;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s  internal control over financial reporting; and
 
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

  Date: May 6, 2016

 

  /s/ James R. Buscemi
  James R. Buscemi
  Chief Financial Officer

 

 

 

Exhibit 32.1:

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Hudson Technologies, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kevin J. Zugibe, as Chief Executive Officer and Chairman of the Board of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

 

  (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
     
  (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

  /s/ Kevin J. Zugibe
  Kevin J. Zugibe
  Chief Executive Officer and
  Chairman of the Board
   
  May 6, 2016

 

 

 

 

Exhibit 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Hudson Technologies, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James R. Buscemi, as Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

 

  (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
     
  (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

  /s/ James R. Buscemi
  James  R. Buscemi
  Chief Financial Officer
   
  May 6, 2016

 

 

 

v3.4.0.3
Document And Entity Information - shares
3 Months Ended
Mar. 31, 2016
Apr. 29, 2016
Document Information [Line Items]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 31, 2016  
Document Fiscal Year Focus 2016  
Document Fiscal Period Focus Q1  
Entity Registrant Name HUDSON TECHNOLOGIES INC /NY  
Entity Central Index Key 0000925528  
Current Fiscal Year End Date --12-31  
Entity Filer Category Accelerated Filer  
Trading Symbol HDSN  
Entity Common Stock, Shares Outstanding   32,968,741
v3.4.0.3
Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Current assets:    
Cash and cash equivalents $ 1,167 $ 1,258
Trade accounts receivable - net 15,840 4,414
Inventories 55,284 61,897
Deferred tax asset 376 376
Prepaid expenses and other current assets 3,728 1,524
Total current assets 76,395 69,469
Property, plant and equipment, less accumulated depreciation 7,216 7,536
Other assets 70 76
Deferred tax asset 1,562 3,287
Goodwill 856 856
Intangible assets, less accumulated amortization 3,634 3,787
Total Assets 89,733 85,011
Current liabilities:    
Trade accounts payable 3,799 5,792
Accrued expenses and other current liabilities 2,668 3,018
Accrued payroll 256 1,577
Short-term debt and current maturities of long-term debt 26,141 20,573
Total current liabilities 32,864 30,960
Other liabilities 0 333
Long-term debt, less current maturities 4,212 4,293
Total Liabilities $ 37,076 $ 35,586
Commitments and contingencies
Stockholders' equity:    
Preferred stock, shares authorized 5,000,000: Series A Convertible preferred stock, $0.01 par value ($100 liquidation preference value); shares authorized 150,000; none issued or outstanding $ 0 $ 0
Common stock, $0.01 par value; shares authorized 100,000,000; issued and outstanding 32,968,741 and 32,804,276 329 328
Additional paid-in capital 62,450 62,163
Accumulated deficit (10,122) (13,066)
Total Stockholders' Equity 52,657 49,425
Total Liabilities and Stockholders' Equity $ 89,733 $ 85,011
v3.4.0.3
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 100,000,000 100,000,000
Common stock, issued 32,968,741 32,804,276
Common stock, outstanding 32,968,741 32,804,276
Preferred Stock    
Preferred stock, shares authorized 5,000,000 5,000,000
Series A Convertible Preferred Stock    
Preferred stock, par value $ 0.01 $ 0.01
Preferred stock, liquidation preference value $ 100 $ 100
Preferred stock, shares authorized 150,000 150,000
Preferred stock, issued 0 0
Preferred stock, outstanding 0 0
v3.4.0.3
Consolidated Income Statements - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Revenues $ 28,167 $ 22,103
Cost of sales 20,645 16,578
Gross profit 7,522 5,525
Operating expenses:    
Selling and marketing 1,117 960
General and administrative 1,386 1,295
Total operating expenses 2,503 2,255
Operating income 5,019 3,270
Interest expense 271 207
Income before income taxes 4,748 3,063
Income tax expense 1,804 1,170
Net income $ 2,944 $ 1,893
Net income per common share - Basic $ 0.09 $ 0.06
Net income per common share - Diluted $ 0.09 $ 0.06
Weighted average number of shares outstanding - Basic 32,888,659 32,333,443
Weighted average number of shares outstanding - Diluted 33,944,876 34,280,385
v3.4.0.3
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Cash flows from operating activities:    
Net income $ 2,944 $ 1,893
Adjustments to reconcile net income to cash used by operating activities:    
Depreciation and amortization 606 544
Allowance for doubtful accounts 40 24
Value of share-based payment arrangements 11 77
Amortization of deferred finance costs 31 31
Deferred tax asset utilization 1,725 1,165
Changes in assets and liabilities (net of acquisition):    
Trade accounts receivable (11,466) (4,191)
Inventories 6,613 (3,065)
Prepaid and other assets (2,229) (162)
Accounts payable and accrued expenses (3,998) 2,872
Cash used by operating activities (5,723) (812)
Cash flows used by investing activities:    
Payments for acquisitions 0 (2,424)
Additions to property, plant, and equipment (133) (59)
Cash used by investing activities (133) (2,483)
Cash flows from financing activities:    
Proceeds from issuance of common stock 278 70
Proceeds from short-term debt - net 5,580 2,822
Repayment of long-term debt (93) (71)
Cash provided by financing activities 5,765 2,821
Decrease in cash and cash equivalents (91) (474)
Cash and cash equivalents at beginning of period 1,258 935
Cash and cash equivalents at end of period 1,167 461
Supplemental Disclosure of Cash Flow Information:    
Cash paid during period for interest 241 176
Non cash investing activity:    
Deferred acquisition consideration $ 1,197 $ 1,902
v3.4.0.3
Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2016
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
Note 1 - Summary of Significant Accounting Policies
 
Business
 
Hudson Technologies, Inc., incorporated under the laws of New York on January 11, 1991, is a refrigerant services company providing innovative solutions to recurring problems within the refrigeration industry. The Company’s operations consist of one reportable segment. The Company's products and services are primarily used in commercial air conditioning, industrial processing and refrigeration systems, and include refrigerant and industrial gas sales, refrigerant management services consisting primarily of reclamation of refrigerants and RefrigerantSide® Services performed at a customer's site, consisting of system decontamination to remove moisture, oils and other contaminants. In addition, the Company’s SmartEnergy OPSTM service is a web-based real time continuous monitoring service applicable to a facility’s refrigeration systems and other energy systems. The Company’s Chiller Chemistry® and Chill Smart® services are also predictive and diagnostic service offerings. As a component of the Company’s products and services, the Company also participates in the generation of carbon offset projects. The Company operates principally through its wholly-owned subsidiary, Hudson Technologies Company. Unless the context requires otherwise, references to the “Company”, “Hudson”, “we", “us”, “our”, or similar pronouns refer to Hudson Technologies, Inc. and its subsidiaries.
 
In preparing the accompanying consolidated financial statements, and in accordance with ASC855-10 “Subsequent Events”, the Company’s management has evaluated subsequent events through the date that the financial statements were filed.
 
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements and with the instructions of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. The financial information included in this quarterly report should be read in conjunction with the Company’s audited financial statements and related notes thereto for the year ended December 31, 2015. Operating results for the three month period ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.
 
In the opinion of management, all estimates and adjustments considered necessary for a fair presentation have been included and all such adjustments were normal and recurring.
 
Consolidation
 
The consolidated financial statements represent all companies of which Hudson directly or indirectly has majority ownership or otherwise controls. Significant intercompany accounts and transactions have been eliminated. The Company's consolidated financial statements include the accounts of wholly-owned subsidiaries Hudson Holdings, Inc. and Hudson Technologies Company. The Company does not present a statement of comprehensive income as its comprehensive income is the same as its net income.
 
Fair Value of Financial Instruments
 
The carrying values of financial instruments including trade accounts receivable and accounts payable approximate fair value at March 31, 2016 and December 31, 2015, because of the relatively short maturity of these instruments. The carrying value of short and long-term debt approximates fair value, due to the variable rate nature of the debt, as of March 31, 2016 and December 31, 2015.
 
Credit Risk
 
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of temporary cash investments and trade accounts receivable. The Company maintains its temporary cash investments in highly-rated financial institutions and, at times, the balances exceed FDIC insurance coverage. The Company's trade accounts receivable are primarily due from companies throughout the United States. The Company reviews each customer's credit history before extending credit.
 
The Company establishes an allowance for doubtful accounts based on factors associated with the credit risk of specific accounts, historical trends, and other information. The carrying value of the Company’s accounts receivable is reduced by the established allowance for doubtful accounts. The allowance for doubtful accounts includes any accounts receivable balances that are determined to be uncollectible, along with a general reserve for the remaining accounts receivable balances. The Company adjusts its reserves based on factors that affect the collectability of the accounts receivable balances.
 
For the three month period ended March 31, 2016, two customers each accounted for 10% or more of the Company’s revenues and, in the aggregate these two customers accounted for 44% of the Company’s revenues. At March 31, 2016, there were $5,085,000 in outstanding receivables from these customers.
 
For the three month period ended March 31, 2015, two customers each accounted for 10% or more of the Company’s revenues and, in the aggregate these two customers accounted for 42% of the Company’s revenues. At March 31, 2015, there were $2,325,000 in outstanding receivables from these customers.
 
The loss of a principal customer or a decline in the economic prospects of and/or a reduction in purchases of the Company's products or services by any such customer could have a material adverse effect on the Company's operating results and financial position.
 
Cash and Cash Equivalents
 
Temporary investments with original maturities of ninety days or less are included in cash and cash equivalents.
 
Inventories
 
Inventories, consisting primarily of refrigerant products available for sale, are stated at the lower of cost, on a first-in first-out basis, or market. Where the market price of inventory is less than the related cost, the Company may be required to write down its inventory through a lower of cost or market adjustment, the impact of which would be reflected in cost of sales on the Consolidated Statements of Operations. Any such adjustment would be based on management’s judgment regarding future demand and market conditions and analysis of historical experience.
 
Property, Plant and Equipment
 
Property, plant and equipment are stated at cost, including internally manufactured equipment. The cost to complete equipment that is under construction is not considered to be material to the Company's financial position. Provision for depreciation is recorded (for financial reporting purposes) using the straight-line method over the useful lives of the respective assets. Leasehold improvements are amortized on a straight-line basis over the shorter of economic life or terms of the respective leases. Costs of maintenance and repairs are charged to expense when incurred.
 
Due to the specialized nature of the Company's business, it is possible that the Company's estimates of equipment useful life periods may change in the future.
 
Goodwill
 
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in business combinations accounted for under the purchase method of accounting. For the year ended December 31, 2015 the Company performed the annual goodwill impairment assessment using a qualitative approach to determine whether it is more likely than not that the fair value of goodwill is less than its carrying value. In performing the qualitative assessment, we identify and consider the significance of relevant key factors, events, and circumstances that affect the fair value of our goodwill. These factors include external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as our actual and planned financial performance. If the results of the qualitative assessment conclude that it is not more likely than not that the fair value of goodwill exceeds its carrying value, additional quantitative impairment testing is performed.
 
Revenues and Cost of Sales
 
Revenues are recorded upon completion of service or product shipment and passage of title to customers in accordance with contractual terms. The Company evaluates each sale to ensure collectability. In addition, each sale is based on an arrangement with the customer and the sales price to the customer is fixed. License fees are recognized over the period of the license based on the respective performance measurements associated with the license. Royalty revenues are recognized when earned. Cost of sales is recorded based on the cost of products shipped or services performed and related direct operating costs of the Company's facilities. To the extent that the Company charges its customers shipping fees, such amounts are included as a component of revenue and the corresponding costs are included as a component of cost of sales.
 
The Company's revenues are derived from refrigerant and reclamation sales and RefrigerantSide® Services, including license and royalty revenues. The revenues for each of these lines are as follows:
 
Three Month Period Ended March 31,
 
2016
 
2015
 
(in thousands, unaudited)
 
 
 
 
 
Refrigerant and reclamation sales
 
$
26,649
 
$
20,487
 
RefrigerantSide® Services
 
 
1,518
 
 
1,616
 
Total
 
$
28,167
 
$
22,103
 
 
Income Taxes
 
The Company utilizes the asset and liability method for recording deferred income taxes, which provides for the establishment of deferred tax asset or liability accounts based on the difference between tax and financial reporting bases of certain assets and liabilities. The tax benefit associated with the Company's net operating loss carry forwards (“NOLs”) is recognized to the extent that the Company is expected to recognize future taxable income. The Company assesses the recoverability of its deferred tax assets based on its expectation that it will recognize future taxable income and adjusts its valuation allowance accordingly. As of March 31, 2016 and December 31, 2015, the net deferred tax asset was $1,938,000 and $3,663,000, respectively.
 
Certain states either do not allow or limit NOLs and as such the Company will be liable for certain state taxes. To the extent that the Company utilizes its NOLs, it will not pay tax on such income but may be subject to the federal alternative minimum tax. In addition, to the extent that the Company’s net income, if any, exceeds the annual NOL limitation it will pay income taxes based on existing statutory rates. Moreover, as a result of a “change in control”, as defined by the Internal Revenue Service, the Company’s ability to utilize its existing NOLs is subject to certain annual limitations. All of the Company’s remaining NOLs of approximately $5,000,000 are subject to annual limitations of $1,300,000. 
 
As a result of an Internal Revenue Service audit, the 2013 and prior federal tax years have been closed. The Company operates in many states throughout the United States and, as of March 31, 2016, the various states’ statutes of limitations remain open for tax years subsequent to 2009. The Company recognizes interest and penalties, if any, relating to income taxes as a component of the provision for income taxes.
 
The Company evaluates uncertain tax positions, if any, by determining if it is more likely than not to be sustained upon examination by the taxing authorities. As of March 31, 2016 and December 31, 2015, the Company had no uncertain tax positions.
 
Income per Common and Equivalent Shares
 
If dilutive, common equivalent shares (common shares assuming exercise of options and warrants) utilizing the treasury stock method are considered in the presentation of diluted earnings per share. The reconciliation of shares used to determine net income per share is as follows (dollars in thousands):
 
 
 
Three Month Period
 
 
 
Ended March 31,
 
 
 
2016
 
2015
 
 
 
 
 
 
 
Net income
 
$
2,944
 
$
1,893
 
 
 
 
 
 
 
 
 
Weighted average number of shares - basic
 
 
32,888,659
 
 
32,333,443
 
Shares underlying warrants
 
 
175,285
 
 
378,780
 
Shares underlying options
 
 
880,932
 
 
1,568,162
 
Weighted average number of shares outstanding - diluted
 
 
33,944,876
 
 
34,280,385
 
  
During the three month periods ended March 31, 2016 and 2015, certain options and warrants aggregating 1,064,000 and 75,000 shares, respectively, have been excluded from the calculation of diluted shares, due to the fact that their effect would be anti-dilutive.
 
Estimates and Risks
 
The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect reported amounts of certain assets and liabilities, the disclosure of contingent assets and liabilities, and the results of operations during the reporting period. Actual results could differ from these estimates.
 
The Company utilizes both internal and external sources to evaluate potential current and future liabilities for various commitments and contingencies. In the event that the assumptions or conditions change in the future, the estimates could differ from the original estimates.
 
Several of the Company's accounting policies involve significant judgments, uncertainties and estimations. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. To the extent that actual results differ from management's judgments and estimates, there could be a material adverse effect on the Company. On a continuous basis, the Company evaluates its estimates, including, but not limited to, those estimates related to its allowance for doubtful accounts, inventory reserves, and valuation allowance for the deferred tax assets relating to its NOLs and commitments and contingencies. With respect to accounts receivable, the Company estimates the necessary allowance for doubtful accounts based on both historical and anticipated trends of payment history and the ability of the customer to fulfill its obligations. For inventory, the Company evaluates both current and anticipated sales prices of its products to determine if a write down of inventory to net realizable value is necessary. In determining the Company’s valuation allowance for its deferred tax assets, the Company assesses its ability to generate taxable income in the future.
 
The Company participates in an industry that is highly regulated, and changes in the regulations affecting our business could affect our operating results. Currently the Company purchases virgin hydrochlorofluorocarbon (“HCFC”) and hydrofluorocarbon (“HFC”) refrigerants and reclaimable, primarily HCFC, HFC and chlorofluorocarbon (“CFC”), refrigerants from suppliers and its customers. Effective January 1, 1996, the Clean Air Act (the “Act”) prohibited the production of virgin CFC refrigerants and limited the production of virgin HCFC refrigerants. Effective January 2004, the Act further limited the production of virgin HCFC refrigerants and federal regulations were enacted which established production and consumption allowances for HCFC refrigerants which imposed limitations on the importation of certain virgin HCFC refrigerants. Under the Act, production of certain virgin HCFC refrigerants is scheduled to be phased out during the period 2010 through 2020, and production of all virgin HCFC refrigerants is scheduled to be phased out by 2030. In April 2013, the Environmental Protection Agency (“EPA”) published a final rule providing for the production or importation of 63 million and 51 million pounds of HCFC-22 in 2013 and 2014, respectively. In October 2014, the EPA published a final rule providing further reductions in the production and consumption allowances for virgin HCFC refrigerants for the years 2015 through 2019 (the “Final Rule”). In the Final Rule, the EPA has established a linear draw down for the production or importation of virgin HCFC-22 that started at approximately 22 million pounds in 2015 and reduces by approximately 4.5 million pounds each year and ends at zero in 2020.
 
To the extent that the Company is unable to source sufficient quantities of refrigerants or is unable to obtain refrigerants on commercially reasonable terms or experiences a decline in demand and/or price for refrigerants sold by the Company, the Company could realize reductions in revenue from refrigerant sales, which could have a material adverse effect on its operating results and its financial position.
 
The Company is subject to various legal proceedings. The Company assesses the merit and potential liability associated with each of these proceedings. In addition, the Company estimates potential liability, if any, related to these matters. To the extent that these estimates are not accurate, or circumstances change in the future, the Company could realize liabilities, which could have a material adverse effect on its operating results and its financial position.
 
Impairment of Long-lived Assets
 
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less the cost to sell.
 
Recent Accounting Pronouncements
 
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The guidance also specifies the accounting for some costs to obtain or fulfill a contract with a customer. The new standard also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multiple-element arrangements. For a public entity, the amendments in this Update are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is not permitted. An entity should apply the amendments in ASU 2014-09 either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. The Company is currently evaluating the effects of ASU 2014-09 and therefore cannot estimate the effects, if any, on historical or future revenue recognition at this time.
 
In April 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs.” ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. For public business entities, the amendments in ASU 2015-03 are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, with early adoption permitted for financial statements that have not been previously issued. An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. Upon transition, an entity is required to comply with the applicable disclosures for a change in an accounting principle. These disclosures include the nature of and reason for the change in accounting principle, the transition method, a description of the prior-period information that has been retrospectively adjusted, and the effect of the change on the financial statement line items (that is, debt issuance cost asset and the debt liability). The adoption of ASU 2015-03 will have no impact on the Company’s results of operations and an immaterial impact on the Company’s balance sheets.
 
In September 2015, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update No. 2015-16, ” Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments”, or ASU 2015-16. This amendment requires the acquirer in a business combination to recognize in the reporting period in which adjustment amounts are determined, any adjustments to provisional amounts that are identified during the measurement period, calculated as if the accounting had been completed at the acquisition date. Prior to the issuance of ASU 2015-16, an acquirer was required to restate prior period financial statements as of the acquisition date for adjustments to provisional amounts. The amendments in ASU 2015-16 are to be applied prospectively upon adoption. The Company adopted ASU 2015-16 in the fourth quarter of 2015. The adoption of the provisions of ASU 2015-16 did not have a material impact on its results of operations or financial position.
 
In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740) - Balance Sheet Classification of Deferred Taxes”. ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in ASU 2015-17 apply to all entities that present a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected. For public business entities, the amendments in ASU 2015-17 are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period.
 
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee also have not significantly changed from previous GAAP. Under ASU 2016-02, a lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term.
 
For finance leases, a lessee is required to do the following: 1. Recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position; 2. Recognize interest on the lease liability separately from amortization of the right-of-use asset in the statement of comprehensive income; and 3. Classify repayments of the principal portion of the lease liability within financing activities and payments of interest on the lease liability and variable lease payments within operating activities in the statement of cash flows.
 
For operating leases, a lessee is required to do the following:1. Recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position; 2. Recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis; and 3. Classify all cash payments within operating activities in the statement of cash flows.
 
In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. These practical expedients relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. An entity that elects to apply the practical expedients will, in effect, continue to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. For public entities, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application of the amendments in this Update is permitted. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on its consolidated financial statements.
v3.4.0.3
Share-based compensation
3 Months Ended
Mar. 31, 2016
Share-Based Compensation [Abstract]  
Share-Based compensation
Note 2 - Share-based compensation
 
Share-based compensation represents the cost related to share-based awards, typically stock options or stock grants, granted to employees, non-employees, officers and directors. Share-based compensation is measured at grant date, based on the estimated aggregate fair value of the award on the grant date, and such amount is charged to compensation expense on a straight-line basis (net of estimated forfeitures) over the requisite service period. For the three month periods ended March 31, 2016 and 2015, the share-based compensation expense of $11,000 and $77,000, respectively, is reflected in general and administrative expenses in the consolidated Statements of Income. 
 
Share-based awards have historically been made as stock options, and recently during the third quarter 2015 as stock grants, issued pursuant to the terms of the Company’s stock option and stock incentive plans, (collectively, the “Plans”), described below. The Plans may be administered by the Board of Directors or the Compensation Committee of the Board or by another committee appointed by the Board from among its members as provided in the Plans. Presently, the Plans are administered by the Company’s Compensation Committee of the Board of Directors. As of March 31, 2016, the Plans authorized the issuance of 6,000,000 shares of the Company’s common stock and, as of March 31, 2016 there were 4,439,023 shares of the Company’s common stock available for issuance for future stock option grants or other stock based awards.
 
Stock option awards, which allow the recipient to purchase shares of the Company’s common stock at a fixed price, are typically granted at an exercise price equal to the Company’s stock price at the date of grant. Typically, the Company’s stock option awards have vested from immediately to two years from the grant date and have had a contractual term ranging from three to ten years.
 
During the three month periods ended March 31, 2016 and 2015, the Company issued options to purchase no shares of common stock and 70,000 shares of common stock, respectively. As of March 31, 2016 there was $4,000 of unrecognized compensation cost related to non-vested previously granted option awards.
 
Effective July 25, 1997, the Company adopted its 1997 Employee Stock Option Plan, which was amended on August 19, 1999, (“1997 Plan”) pursuant to which 2,000,000 shares of common stock were reserved for issuance upon the exercise of options designated as either (i) incentive stock options (“ISOs”) under the Internal Revenue Code of 1986, as amended (the “Code”), or (ii) nonqualified options. ISOs could be granted under the 1997 Plan to employees and officers of the Company. Non-qualified options could be granted to consultants, directors (whether or not they are employees), employees or officers of the Company. Stock appreciation rights could also be issued in tandem with stock options. Effective June 11, 2007, the Company’s ability to grant options or stock appreciation rights under the 1997 Plan expired.
 
Effective September 10, 2004, the Company adopted its 2004 Stock Incentive Plan (“2004 Plan”) pursuant to which 2,500,000 shares of common stock were reserved for issuance (i) upon the exercise of options, designated as either ISOs under the Code or nonqualified options, or (ii) as stock, deferred stock or other stock-based awards. ISOs could be granted under the 2004 Plan to employees and officers of the Company. Non-qualified options, stock, deferred stock or other stock-based awards could be granted to consultants, directors (whether or not they are employees), employees or officers of the Company. Stock appreciation rights could also be issued in tandem with stock options. Effective September 10, 2014, the Company’s ability to grant options or other awards under the 2004 Plan expired.
 
Effective August 27, 2008, the Company adopted its 2008 Stock Incentive Plan (“2008 Plan”) pursuant to which 3,000,000 shares of common stock were reserved for issuance (i) upon the exercise of options, designated as either ISOs under the Code or nonqualified options, or (ii) as stock, deferred stock or other stock-based awards. ISOs may be granted under the 2008 Plan to employees and officers of the Company. Non-qualified options, stock, deferred stock or other stock-based awards may be granted to consultants, directors (whether or not they are employees), employees or officers of the Company. Stock appreciation rights may also be issued in tandem with stock options. Unless the 2008 Plan is sooner terminated, the ability to grant options or other awards under the 2008 Plan will expire on August 27, 2018.
 
ISOs granted under the 2008 Plan may not be granted at a price less than the fair market value of the common stock on the date of grant (or 110% of fair market value in the case of persons holding 10% or more of the voting stock of the Company). Nonqualified options granted under the 2008 Plan may not be granted at a price less than the fair market value of the common stock. Options granted under the 2008 Plan expire not more than ten years from the date of grant (five years in the case of ISOs granted to persons holding 10% or more of the voting stock of the Company).
 
Effective September 17, 2014, the Company adopted its 2014 Stock Incentive Plan (“2014 Plan”) pursuant to which 3,000,000 shares of common stock were reserved for issuance (i) upon the exercise of options, designated as either ISOs under the Code or nonqualified options, or (ii) as stock, deferred stock or other stock-based awards. ISOs may be granted under the 2014 Plan to employees and officers of the Company. Non-qualified options, stock, deferred stock or other stock-based awards may be granted to consultants, directors (whether or not they are employees), employees or officers of the Company. Stock appreciation rights may also be issued in tandem with stock options. Unless the 2014 Plan is sooner terminated, the ability to grant options or other awards under the 2014 Plan will expire on September 17, 2024.
 
ISOs granted under the 2014 Plan may not be granted at a price less than the fair market value of the common stock on the date of grant (or 110% of fair market value in the case of persons holding 10% or more of the voting stock of the Company). Nonqualified options granted under the 2014 Plan may not be granted at a price less than the fair market value of the common stock. Options granted under the 2014 Plan expire not more than ten years from the date of grant (five years in the case of ISOs granted to persons holding 10% or more of the voting stock of the Company).
 
All stock options have been granted to employees and non-employees at exercise prices equal to or in excess of the market value on the date of the grant.
 
The Company determines the fair value of share based awards at the grant date by using the Black-Scholes option-pricing model, and is incorporating the simplified method to compute expected lives of share based awards with the following weighted-average assumptions:
 
Three Month Period
Ended March 31,
 
2016
 
 
2015
 
Assumptions
 
 
 
 
 
 
 
 
Dividend yield
 
 
-
 
 
 
0
%
Risk free interest rate
 
 
-
 
 
 
.83%-1.69
%
Expected volatility
 
 
-
 
 
 
59%-66
%
Expected lives
 
 
-
 
 
 
3-5 years
 
 
A summary of the activity for stock options issued under the Company's Plans for the indicated periods is presented below:
 
Stock Option Plan Totals
 
Shares
 
Weighted
Average
Exercise Price
 
Outstanding at December 31, 2014
 
 
3,280,874
 
$
1.98
 
-Cancelled
 
 
(132,500)
 
$
3.72
 
-Exercised
 
 
(679,291)
 
$
1.65
 
-Granted
 
 
164,506
 
$
3.28
 
Outstanding at December 31, 2015
 
 
2,633,589
 
$
2.06
 
-Exercised
 
 
(120,125)
 
$
1.36
 
Outstanding at March 31, 2016
 
 
2,513,464
 
$
2.09
 
 
The following is the weighted average contractual life in years and the weighted average exercise price at March 31, 2016 of:
 
 
 
 
 
 
Weighted Average
 
 
 
 
 
 
Number of
 
Remaining
 
Weighted Average
 
 
 
Options
 
Contractual Life
 
Exercise Price
 
Options outstanding
 
 
2,513,464
 
 
1.9 years
 
$
2.09
 
Options vested
 
 
2,505,130
 
 
1.9 years
 
$
2.09
 
 
The following is the intrinsic value at March 31, 2016 of:
 
Options outstanding
 
$
3,050,000
 
Options exercised in 2016
 
$
253,000
 
 
The intrinsic value of options exercised during the year ended December 31, 2015 was $1,309,000.
v3.4.0.3
Debt
3 Months Ended
Mar. 31, 2016
Debt Disclosure [Abstract]  
Debt
Note 3 - Debt
 
Bank Credit Line
 
On June 22, 2012, a subsidiary of Hudson entered into a Revolving Credit, Term Loan and Security Agreement (the “PNC Facility”) with PNC Bank, National Association, as agent (“Agent” or “PNC”), and such other lenders as may thereafter become a party to the PNC Facility. Under the terms of the PNC Facility, as amended by the First Amendment to the PNC Facility, dated February 15, 2013, Hudson may borrow up to a maximum of $40,000,000 consisting of a term loan in the principal amount of $4,000,000 and revolving loans in a maximum amount up to $36,000,000. Amounts borrowed under the PNC Facility may be used by Hudson for working capital needs and to reimburse drawings under letters of credit. At March 31, 2016, total borrowings under the PNC Facility were approximately $29,808,000, and there was approximately $10,200,000 available to borrow under the revolving line of credit. The effective interest rate under the PNC Facility was 4.00% at March 31, 2016.
 
Interest on loans under the PNC Facility is payable in arrears on the first day of each month with respect to loans bearing interest at the domestic rate (as set forth in the PNC Facility) and at the end of each interest period with respect to loans bearing interest at the Eurodollar Rate (as defined in the PNC Facility) or, for Eurodollar Rate Loans (as defined in the PNC Facility) with an interest period in excess of three months, at the earlier of (a) each three months from the commencement of such Eurodollar Rate Loan or (b) the end of the interest period. Interest charges with respect to loans are computed on the actual principal amount of loans outstanding during the month at a rate per annum equal to (A) with respect to Domestic Rate Loans (as defined in the PNC Facility), the sum of the Alternate Base Rate (as defined in the PNC Facility) plus one half of one percent (.50%) and (B) with respect to Eurodollar Rate Loans, the sum of the Eurodollar Rate plus two and one quarter of one percent (2.25%).
 
Hudson granted to PNC, for itself, and as agent for such other lenders as may thereafter become a lender under the PNC Facility, a security interest in Hudson’s receivables, intellectual property, general intangibles, inventory and certain other assets.
 
The PNC Facility contains certain financial and non-financial covenants relating to Hudson, including limitations on Hudson’s ability to pay dividends on common stock or preferred stock, and also includes certain events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to other obligations, events of bankruptcy and insolvency, certain ERISA events, judgments in excess of specified amounts, impairments to guarantees and a change of control. The PNC Facility contains a financial covenant to maintain at all times a Fixed Charge Coverage Ratio of not less than 1.10 to 1.00, tested quarterly on a rolling twelve month basis. Fixed Charge Coverage Ratio is defined in the PNC Facility, with respect to any fiscal period, as the ratio of (a) EBITDA of Hudson for such period, minus unfinanced capital expenditures (as defined in the PNC Facility) made by Hudson during such period, minus the aggregate amount of cash taxes paid by Hudson during such period, minus the aggregate amount of dividends and distributions made by Hudson during such period, minus the aggregate amount of payments made with cash by Hudson to satisfy soil sampling and reclamation related to environmental cleanup at the Company’s former Hillburn, NY facility during such period (to the extent not already included in the calculation of EBITDA as determined by the Agent) to (b) the aggregate amount of all principal payments due and/or made, except principal payments related to outstanding revolving advances with regard to all funded debt (as defined in the PNC Facility) of Hudson during such period, plus the aggregate interest expense of Hudson during such period. EBITDA as defined in the PNC Facility shall mean for any period the sum of (i) earnings before interest and taxes for such period plus (ii) depreciation expenses for such period, plus (iii) amortization expenses for such period, plus (iv) non-cash charges.
 
On October 25, 2013, the Company entered into the Second Amendment to the PNC facility (the “Second PNC Amendment”) which, among other things, waived the requirement to comply with the minimum fixed charge coverage ratio covenant of 1.10 to 1.00 for the fiscal quarter ended September 30, 2013, under the PNC Facility, and suspended the minimum fixed charge ratio covenant until the quarterly period ended March 31, 2015.
 
On July 2, 2014, the Company entered into the Third Amendment to the PNC Facility (the “Third PNC Amendment”) which, among other things, extended the term of PNC Facility. Pursuant to the Third PNC Amendment, which was effective June 30, 2014, the Termination Date of the PNC Facility (as defined in the PNC Facility) was extended to June 30, 2018.
 
On July 1, 2015, the Company entered into the Fourth Amendment to the PNC Facility (the “Fourth PNC Amendment”). The Fourth PNC Amendment redefined the “Revolving Interest Rate” as well as the “Term Loan Rate” (as defined in the PNC Facility) as follows:
 
“Revolving Interest Rate” shall mean an interest rate per annum equal to (a) the sum of the Alternate Base Rate (as defined in the PNC Facility) plus one half of one percent (.50%) with respect to Domestic Rate Loans and (b) the sum of the Eurodollar Rate plus two and one quarter of one percent (2.25%) with respect to the Eurodollar Rate Loans.
 
“Term Loan Rate” shall mean an interest rate per annum equal to (a) the sum of the Alternate Base Rate plus one half of one percent (.50%) with respect to the Domestic Rate Loans and (b) the sum of the Eurodollar Rate plus two and one quarter of one percent (2.25%) with respect to Eurodollar Rate Loans.
 
On April 8, 2016, the Company entered into the Fifth Amendment to the PNC Facility (the “Fifth PNC Amendment”). Pursuant to the Fifth PNC Amendment, the Maximum Loan Amount (as defined in the PNC Facility) has been increased from $40,000,000 to $50,000,000, and the Maximum Revolving Advance Amount (as defined in the PNC Facility) has been increased from $36,000,000 to $46,000,000. Additionally, pursuant to the Fifth PNC Amendment the Termination Date of the Facility (as defined in the PNC Facility) has been extended to June 30, 2020.
 
The Company was in compliance with all covenants, under the PNC Facility as of March 31, 2016. The Company’s ability to comply with these covenants in future quarters may be affected by events beyond the Company’s control, including general economic conditions, weather conditions, regulations and refrigerant pricing. Although we expect to remain in compliance with all covenants in the PNC Facility, as amended, depending on our future operating performance and general economic conditions, we cannot make any assurance that we will continue to be in compliance.
 
The commitments under the PNC Facility will expire and the full outstanding principal amount of the loans, together with accrued and unpaid interest, are due and payable in full on June 30, 2020, unless the commitments are terminated for any reason or the outstanding principal amount of the loans are accelerated sooner following an event of default.
v3.4.0.3
Acquisitions
3 Months Ended
Mar. 31, 2016
Business Combinations [Abstract]  
Acquisitions
Note 4 - Acquisitions
 
On November 5, 2014 the Company purchased certain assets from Polar Technologies, LLC (“Polar”) related to its refrigerant reclamation business and facilities in Nashville, Tennessee; Ontario, California; and San Juan, Puerto Rico; hiring approximately thirty-two Polar employees associated with the business. The purchase price for this acquisition was $8,035,000. A portion of the purchase price is to be paid in the future pursuant to the purchase agreement. The preliminary asset allocation reflected in the December 31, 2014 financial statements was approximately $5,435,000 of tangible assets, approximately $2,335,000 of intangible assets, and approximately $265,000 of goodwill. The intangible assets will be amortized over a period of 2 to 10 years. The goodwill recognized as part of the acquisition, is deductible for tax purposes.
 
As of December 31, 2015 the valuation and allocation of the purchase price for Polar has been finalized resulting in an increase in tangible assets of $165,000, as well as an increase in goodwill of $170,000 and a decrease in intangible assets of $335,000. This final valuation has been reflected in the December 31, 2015 financial statements.
 
The results of the Polar operations are included in the Company’s consolidated statement of operations from the date of acquisition and are not material to the Company’s financial position or results of operations.
 
On January 16, 2015, the Company acquired certain assets of a supplier of refrigerants and compressed gases, and also hired three employees associated with the business. The purchase price for this acquisition was $2,424,000 cash paid at closing and the assumption of a liability of $20,000, and a maximum of an additional $3,000,000 earn-out. The preliminary asset allocation was approximately $1,606,000 of tangible assets, approximately $1,500,000 of intangible assets, and approximately $2,338,000 of goodwill.
 
As of December 31, 2015 the valuation and allocation of the purchase price for this acquisition has been finalized. As part of that process it has been determined that the earn-out payable that had been previously recorded at the maximum earn out of $3,000,000 per the purchase agreement was overstated by approximately $1,000,000. This adjustment to the earn-out payable resulted in lowering the purchase price from approximately $5,400,000 to approximately $4,400,000. The final valuation resulted in a reduction in goodwill by approximately $1,900,000, and increase in intangible assets of approximately $800,000 and an increase in current assets of approximately $100,000. This final valuation as well as the respective changes in the amortization of intangibles has been reflected in the December 31, 2015 financial statements.
 
The adjusted earn-out payable of approximately $2,000,000 consists of approximately $1,100,000 for the fiscal year ended December 31, 2015 and approximately $900,000 for the fiscal year ending December 31, 2016. For the fiscal year ended December 31, 2015 the actual earn-out was approximately $800,000 resulting in a year end adjustment to reduce the payable by approximately $300,000 which has been reflected in the December 31, 2015 statements of operations as Other Income. As of December 31, 2015 approximately $445,000 of the 2015 earn-out has been paid and the remaining balance of $371,000 is recorded as a current liability on the December 31, 2015 balance sheet.
 
The earn out payable for the fiscal year ending December 31, 2016 of approximately $900,000 has been recorded in other current liabilities on the December 31, 2015 balance sheet. As of March 31, 2016 there is no change in the estimated earnout.
 
The intangible assets are being amortized over a period ranging from two to ten years. The goodwill recognized as part of the acquisition will be deductible for tax purposes. The transaction also provides for additional employee compensation for years 2017 through 2019, based on certain revenue performance. The total additional employee compensation, if any, cannot exceed $3,000,000.
 
The results of the acquired business operations are included in the Company’s consolidated statements of operations from the date of acquisition, and are not material to the Company’s financial position or results of operations.
 
Pro Forma Information
 
Pro forma revenues and results of operations as if the businesses had been acquired on January 1, 2014 are not presented, as the acquisitions are not material to our financial position or our results of operations.
v3.4.0.3
Summary of Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2016
Accounting Policies [Abstract]  
Business
Business
 
Hudson Technologies, Inc., incorporated under the laws of New York on January 11, 1991, is a refrigerant services company providing innovative solutions to recurring problems within the refrigeration industry. The Company’s operations consist of one reportable segment. The Company's products and services are primarily used in commercial air conditioning, industrial processing and refrigeration systems, and include refrigerant and industrial gas sales, refrigerant management services consisting primarily of reclamation of refrigerants and RefrigerantSide® Services performed at a customer's site, consisting of system decontamination to remove moisture, oils and other contaminants. In addition, the Company’s SmartEnergy OPSTM service is a web-based real time continuous monitoring service applicable to a facility’s refrigeration systems and other energy systems. The Company’s Chiller Chemistry® and Chill Smart® services are also predictive and diagnostic service offerings. As a component of the Company’s products and services, the Company also participates in the generation of carbon offset projects. The Company operates principally through its wholly-owned subsidiary, Hudson Technologies Company. Unless the context requires otherwise, references to the “Company”, “Hudson”, “we", “us”, “our”, or similar pronouns refer to Hudson Technologies, Inc. and its subsidiaries.
 
In preparing the accompanying consolidated financial statements, and in accordance with ASC855-10 “Subsequent Events”, the Company’s management has evaluated subsequent events through the date that the financial statements were filed.
 
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements and with the instructions of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. The financial information included in this quarterly report should be read in conjunction with the Company’s audited financial statements and related notes thereto for the year ended December 31, 2015. Operating results for the three month period ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.
 
In the opinion of management, all estimates and adjustments considered necessary for a fair presentation have been included and all such adjustments were normal and recurring.
Consolidation
Consolidation
 
The consolidated financial statements represent all companies of which Hudson directly or indirectly has majority ownership or otherwise controls. Significant intercompany accounts and transactions have been eliminated. The Company's consolidated financial statements include the accounts of wholly-owned subsidiaries Hudson Holdings, Inc. and Hudson Technologies Company. The Company does not present a statement of comprehensive income as its comprehensive income is the same as its net income.
Fair Value of Financial Instruments
Fair Value of Financial Instruments
 
The carrying values of financial instruments including trade accounts receivable and accounts payable approximate fair value at March 31, 2016 and December 31, 2015, because of the relatively short maturity of these instruments. The carrying value of short and long-term debt approximates fair value, due to the variable rate nature of the debt, as of March 31, 2016 and December 31, 2015.
Credit Risk
Credit Risk
 
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of temporary cash investments and trade accounts receivable. The Company maintains its temporary cash investments in highly-rated financial institutions and, at times, the balances exceed FDIC insurance coverage. The Company's trade accounts receivable are primarily due from companies throughout the United States. The Company reviews each customer's credit history before extending credit.
 
The Company establishes an allowance for doubtful accounts based on factors associated with the credit risk of specific accounts, historical trends, and other information. The carrying value of the Company’s accounts receivable is reduced by the established allowance for doubtful accounts. The allowance for doubtful accounts includes any accounts receivable balances that are determined to be uncollectible, along with a general reserve for the remaining accounts receivable balances. The Company adjusts its reserves based on factors that affect the collectability of the accounts receivable balances.
 
For the three month period ended March 31, 2016, two customers each accounted for 10% or more of the Company’s revenues and, in the aggregate these two customers accounted for 44% of the Company’s revenues. At March 31, 2016, there were $5,085,000 in outstanding receivables from these customers.
 
For the three month period ended March 31, 2015, two customers each accounted for 10% or more of the Company’s revenues and, in the aggregate these two customers accounted for 42% of the Company’s revenues. At March 31, 2015, there were $2,325,000 in outstanding receivables from these customers.
 
The loss of a principal customer or a decline in the economic prospects of and/or a reduction in purchases of the Company's products or services by any such customer could have a material adverse effect on the Company's operating results and financial position.
Cash and Cash Equivalents
Cash and Cash Equivalents
 
Temporary investments with original maturities of ninety days or less are included in cash and cash equivalents.
Inventories
Inventories
 
Inventories, consisting primarily of refrigerant products available for sale, are stated at the lower of cost, on a first-in first-out basis, or market. Where the market price of inventory is less than the related cost, the Company may be required to write down its inventory through a lower of cost or market adjustment, the impact of which would be reflected in cost of sales on the Consolidated Statements of Operations. Any such adjustment would be based on management’s judgment regarding future demand and market conditions and analysis of historical experience.
Property, Plant and Equipment
Property, Plant and Equipment
 
Property, plant and equipment are stated at cost, including internally manufactured equipment. The cost to complete equipment that is under construction is not considered to be material to the Company's financial position. Provision for depreciation is recorded (for financial reporting purposes) using the straight-line method over the useful lives of the respective assets. Leasehold improvements are amortized on a straight-line basis over the shorter of economic life or terms of the respective leases. Costs of maintenance and repairs are charged to expense when incurred.
 
Due to the specialized nature of the Company's business, it is possible that the Company's estimates of equipment useful life periods may change in the future.
Goodwill
Goodwill
 
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in business combinations accounted for under the purchase method of accounting. For the year ended December 31, 2015 the Company performed the annual goodwill impairment assessment using a qualitative approach to determine whether it is more likely than not that the fair value of goodwill is less than its carrying value. In performing the qualitative assessment, we identify and consider the significance of relevant key factors, events, and circumstances that affect the fair value of our goodwill. These factors include external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as our actual and planned financial performance. If the results of the qualitative assessment conclude that it is not more likely than not that the fair value of goodwill exceeds its carrying value, additional quantitative impairment testing is performed.
Revenues and Cost of Sales
Revenues and Cost of Sales
 
Revenues are recorded upon completion of service or product shipment and passage of title to customers in accordance with contractual terms. The Company evaluates each sale to ensure collectability. In addition, each sale is based on an arrangement with the customer and the sales price to the customer is fixed. License fees are recognized over the period of the license based on the respective performance measurements associated with the license. Royalty revenues are recognized when earned. Cost of sales is recorded based on the cost of products shipped or services performed and related direct operating costs of the Company's facilities. To the extent that the Company charges its customers shipping fees, such amounts are included as a component of revenue and the corresponding costs are included as a component of cost of sales.
 
The Company's revenues are derived from refrigerant and reclamation sales and RefrigerantSide® Services, including license and royalty revenues. The revenues for each of these lines are as follows:
 
Three Month Period Ended March 31,
 
2016
 
2015
 
(in thousands, unaudited)
 
 
 
 
 
Refrigerant and reclamation sales
 
$
26,649
 
$
20,487
 
RefrigerantSide® Services
 
 
1,518
 
 
1,616
 
Total
 
$
28,167
 
$
22,103
 
Income Taxes
Income Taxes
 
The Company utilizes the asset and liability method for recording deferred income taxes, which provides for the establishment of deferred tax asset or liability accounts based on the difference between tax and financial reporting bases of certain assets and liabilities. The tax benefit associated with the Company's net operating loss carry forwards (“NOLs”) is recognized to the extent that the Company is expected to recognize future taxable income. The Company assesses the recoverability of its deferred tax assets based on its expectation that it will recognize future taxable income and adjusts its valuation allowance accordingly. As of March 31, 2016 and December 31, 2015, the net deferred tax asset was $1,938,000 and $3,663,000, respectively.
 
Certain states either do not allow or limit NOLs and as such the Company will be liable for certain state taxes. To the extent that the Company utilizes its NOLs, it will not pay tax on such income but may be subject to the federal alternative minimum tax. In addition, to the extent that the Company’s net income, if any, exceeds the annual NOL limitation it will pay income taxes based on existing statutory rates. Moreover, as a result of a “change in control”, as defined by the Internal Revenue Service, the Company’s ability to utilize its existing NOLs is subject to certain annual limitations. All of the Company’s remaining NOLs of approximately $5,000,000 are subject to annual limitations of $1,300,000. 
 
As a result of an Internal Revenue Service audit, the 2013 and prior federal tax years have been closed. The Company operates in many states throughout the United States and, as of March 31, 2016, the various states’ statutes of limitations remain open for tax years subsequent to 2009. The Company recognizes interest and penalties, if any, relating to income taxes as a component of the provision for income taxes.
 
The Company evaluates uncertain tax positions, if any, by determining if it is more likely than not to be sustained upon examination by the taxing authorities. As of March 31, 2016 and December 31, 2015, the Company had no uncertain tax positions.
Income per Common and Equivalent Shares
Income per Common and Equivalent Shares
 
If dilutive, common equivalent shares (common shares assuming exercise of options and warrants) utilizing the treasury stock method are considered in the presentation of diluted earnings per share. The reconciliation of shares used to determine net income per share is as follows (dollars in thousands):
 
 
 
Three Month Period
 
 
 
Ended March 31,
 
 
 
2016
 
2015
 
 
 
 
 
 
 
Net income
 
$
2,944
 
$
1,893
 
 
 
 
 
 
 
 
 
Weighted average number of shares - basic
 
 
32,888,659
 
 
32,333,443
 
Shares underlying warrants
 
 
175,285
 
 
378,780
 
Shares underlying options
 
 
880,932
 
 
1,568,162
 
Weighted average number of shares outstanding - diluted
 
 
33,944,876
 
 
34,280,385
 
  
During the three month periods ended March 31, 2016 and 2015, certain options and warrants aggregating 1,064,000 and 75,000 shares, respectively, have been excluded from the calculation of diluted shares, due to the fact that their effect would be anti-dilutive.
Estimates and Risks
Estimates and Risks
 
The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect reported amounts of certain assets and liabilities, the disclosure of contingent assets and liabilities, and the results of operations during the reporting period. Actual results could differ from these estimates.
 
The Company utilizes both internal and external sources to evaluate potential current and future liabilities for various commitments and contingencies. In the event that the assumptions or conditions change in the future, the estimates could differ from the original estimates.
 
Several of the Company's accounting policies involve significant judgments, uncertainties and estimations. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. To the extent that actual results differ from management's judgments and estimates, there could be a material adverse effect on the Company. On a continuous basis, the Company evaluates its estimates, including, but not limited to, those estimates related to its allowance for doubtful accounts, inventory reserves, and valuation allowance for the deferred tax assets relating to its NOLs and commitments and contingencies. With respect to accounts receivable, the Company estimates the necessary allowance for doubtful accounts based on both historical and anticipated trends of payment history and the ability of the customer to fulfill its obligations. For inventory, the Company evaluates both current and anticipated sales prices of its products to determine if a write down of inventory to net realizable value is necessary. In determining the Company’s valuation allowance for its deferred tax assets, the Company assesses its ability to generate taxable income in the future.
 
The Company participates in an industry that is highly regulated, and changes in the regulations affecting our business could affect our operating results. Currently the Company purchases virgin hydrochlorofluorocarbon (“HCFC”) and hydrofluorocarbon (“HFC”) refrigerants and reclaimable, primarily HCFC, HFC and chlorofluorocarbon (“CFC”), refrigerants from suppliers and its customers. Effective January 1, 1996, the Clean Air Act (the “Act”) prohibited the production of virgin CFC refrigerants and limited the production of virgin HCFC refrigerants. Effective January 2004, the Act further limited the production of virgin HCFC refrigerants and federal regulations were enacted which established production and consumption allowances for HCFC refrigerants which imposed limitations on the importation of certain virgin HCFC refrigerants. Under the Act, production of certain virgin HCFC refrigerants is scheduled to be phased out during the period 2010 through 2020, and production of all virgin HCFC refrigerants is scheduled to be phased out by 2030. In April 2013, the Environmental Protection Agency (“EPA”) published a final rule providing for the production or importation of 63 million and 51 million pounds of HCFC-22 in 2013 and 2014, respectively. In October 2014, the EPA published a final rule providing further reductions in the production and consumption allowances for virgin HCFC refrigerants for the years 2015 through 2019 (the “Final Rule”). In the Final Rule, the EPA has established a linear draw down for the production or importation of virgin HCFC-22 that started at approximately 22 million pounds in 2015 and reduces by approximately 4.5 million pounds each year and ends at zero in 2020.
 
To the extent that the Company is unable to source sufficient quantities of refrigerants or is unable to obtain refrigerants on commercially reasonable terms or experiences a decline in demand and/or price for refrigerants sold by the Company, the Company could realize reductions in revenue from refrigerant sales, which could have a material adverse effect on its operating results and its financial position.
 
The Company is subject to various legal proceedings. The Company assesses the merit and potential liability associated with each of these proceedings. In addition, the Company estimates potential liability, if any, related to these matters. To the extent that these estimates are not accurate, or circumstances change in the future, the Company could realize liabilities, which could have a material adverse effect on its operating results and its financial position.
Impairment of Long-lived Assets
Impairment of Long-lived Assets
 
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less the cost to sell.
Recent Accounting Pronouncements
Recent Accounting Pronouncements
 
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The guidance also specifies the accounting for some costs to obtain or fulfill a contract with a customer. The new standard also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multiple-element arrangements. For a public entity, the amendments in this Update are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is not permitted. An entity should apply the amendments in ASU 2014-09 either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. The Company is currently evaluating the effects of ASU 2014-09 and therefore cannot estimate the effects, if any, on historical or future revenue recognition at this time.
 
In April 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs.” ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. For public business entities, the amendments in ASU 2015-03 are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, with early adoption permitted for financial statements that have not been previously issued. An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. Upon transition, an entity is required to comply with the applicable disclosures for a change in an accounting principle. These disclosures include the nature of and reason for the change in accounting principle, the transition method, a description of the prior-period information that has been retrospectively adjusted, and the effect of the change on the financial statement line items (that is, debt issuance cost asset and the debt liability). The adoption of ASU 2015-03 will have no impact on the Company’s results of operations and an immaterial impact on the Company’s balance sheets.
 
In September 2015, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update No. 2015-16, ” Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments”, or ASU 2015-16. This amendment requires the acquirer in a business combination to recognize in the reporting period in which adjustment amounts are determined, any adjustments to provisional amounts that are identified during the measurement period, calculated as if the accounting had been completed at the acquisition date. Prior to the issuance of ASU 2015-16, an acquirer was required to restate prior period financial statements as of the acquisition date for adjustments to provisional amounts. The amendments in ASU 2015-16 are to be applied prospectively upon adoption. The Company adopted ASU 2015-16 in the fourth quarter of 2015. The adoption of the provisions of ASU 2015-16 did not have a material impact on its results of operations or financial position.
 
In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740) - Balance Sheet Classification of Deferred Taxes”. ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in ASU 2015-17 apply to all entities that present a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected. For public business entities, the amendments in ASU 2015-17 are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period.
 
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee also have not significantly changed from previous GAAP. Under ASU 2016-02, a lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term.
 
For finance leases, a lessee is required to do the following: 1. Recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position; 2. Recognize interest on the lease liability separately from amortization of the right-of-use asset in the statement of comprehensive income; and 3. Classify repayments of the principal portion of the lease liability within financing activities and payments of interest on the lease liability and variable lease payments within operating activities in the statement of cash flows.
 
For operating leases, a lessee is required to do the following:1. Recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position; 2. Recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis; and 3. Classify all cash payments within operating activities in the statement of cash flows.
 
In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. These practical expedients relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. An entity that elects to apply the practical expedients will, in effect, continue to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. For public entities, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application of the amendments in this Update is permitted. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on its consolidated financial statements.
v3.4.0.3
Summary of Significant Accounting Policies (Tables)
3 Months Ended
Mar. 31, 2016
Accounting Policies [Abstract]  
Company's revenues
The Company's revenues are derived from refrigerant and reclamation sales and RefrigerantSide® Services, including license and royalty revenues. The revenues for each of these lines are as follows:
 
Three Month Period Ended March 31,
 
2016
 
2015
 
(in thousands, unaudited)
 
 
 
 
 
Refrigerant and reclamation sales
 
$
26,649
 
$
20,487
 
RefrigerantSide® Services
 
 
1,518
 
 
1,616
 
Total
 
$
28,167
 
$
22,103
 
Reconciliation of shares used to determine net income per share
The reconciliation of shares used to determine net income per share is as follows (dollars in thousands):
 
 
 
Three Month Period
 
 
 
Ended March 31,
 
 
 
2016
 
2015
 
 
 
 
 
 
 
Net income
 
$
2,944
 
$
1,893
 
 
 
 
 
 
 
 
 
Weighted average number of shares - basic
 
 
32,888,659
 
 
32,333,443
 
Shares underlying warrants
 
 
175,285
 
 
378,780
 
Shares underlying options
 
 
880,932
 
 
1,568,162
 
Weighted average number of shares outstanding - diluted
 
 
33,944,876
 
 
34,280,385
 
v3.4.0.3
Share-based compensation (Tables)
3 Months Ended
Mar. 31, 2016
Share-Based Compensation [Abstract]  
Weighted-average assumptions used in determining fair value of share based awards
The Company determines the fair value of share based awards at the grant date by using the Black-Scholes option-pricing model, and is incorporating the simplified method to compute expected lives of share based awards with the following weighted-average assumptions:
 
Three Month Period
Ended March 31,
 
2016
 
 
2015
 
Assumptions
 
 
 
 
 
 
 
 
Dividend yield
 
 
-
 
 
 
0
%
Risk free interest rate
 
 
-
 
 
 
.83%-1.69
%
Expected volatility
 
 
-
 
 
 
59%-66
%
Expected lives
 
 
-
 
 
 
3-5 years
 
Summary of status of company's stock option plan
A summary of the activity for stock options issued under the Company's Plans for the indicated periods is presented below:
 
Stock Option Plan Totals
 
Shares
 
Weighted
Average
Exercise Price
 
Outstanding at December 31, 2014
 
 
3,280,874
 
$
1.98
 
-Cancelled
 
 
(132,500)
 
$
3.72
 
-Exercised
 
 
(679,291)
 
$
1.65
 
-Granted
 
 
164,506
 
$
3.28
 
Outstanding at December 31, 2015
 
 
2,633,589
 
$
2.06
 
-Exercised
 
 
(120,125)
 
$
1.36
 
Outstanding at March 31, 2016
 
 
2,513,464
 
$
2.09
 
Weighted average contractual life and exercise price
The following is the weighted average contractual life in years and the weighted average exercise price at March 31, 2016 of:
 
 
 
 
 
 
Weighted Average
 
 
 
 
 
 
Number of
 
Remaining
 
Weighted Average
 
 
 
Options
 
Contractual Life
 
Exercise Price
 
Options outstanding
 
 
2,513,464
 
 
1.9 years
 
$
2.09
 
Options vested
 
 
2,505,130
 
 
1.9 years
 
$
2.09
 
Intrinsic value
The following is the intrinsic value at March 31, 2016 of:
 
Options outstanding
 
$
3,050,000
 
Options exercised in 2016
 
$
253,000
 
v3.4.0.3
Summary of Significant Accounting Policies - Company's Revenues (Detail) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Segment Reporting, Revenue Reconciling Item [Line Items]    
Refrigerant and reclamation sales $ 26,649 $ 20,487
RefrigerantSide® Services 1,518 1,616
Total $ 28,167 $ 22,103
v3.4.0.3
Summary of Significant Accounting Policies - Reconciliation of Shares Used to Determine Net Income per Share (Detail) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Earnings Per Share Disclosure [Line Items]    
Net income $ 2,944 $ 1,893
Weighted average number of shares outstanding - basic 32,888,659 32,333,443
Weighted average number of shares outstanding - diluted 33,944,876 34,280,385
Warrants    
Earnings Per Share Disclosure [Line Items]    
Shares underlying 175,285 378,780
Options    
Earnings Per Share Disclosure [Line Items]    
Shares underlying 880,932 1,568,162
v3.4.0.3
Summary of Significant Accounting Policies - Additional Information (Detail)
lb in Millions
3 Months Ended 12 Months Ended
Mar. 31, 2016
USD ($)
shares
Mar. 31, 2015
USD ($)
shares
Dec. 31, 2014
lb
Dec. 31, 2013
lb
Significant Accounting Policies [Line Items]        
Entity Incorporation Date Of Incorporation Jan. 11, 1991      
Concentration risk, customer two customers each accounted for 10% or more of the Companys revenues two customers each accounted for 10% or more of the Companys revenues    
Deferred tax asset $ 1,938,000 $ 3,663,000    
Operating loss carryforwards, limitations on use All of the Company’s remaining NOLs of approximately $5,000,000 are subject to annual limitations of $1,300,000.      
Options and warrants excluded from the calculation of diluted shares | shares 1,064,000 75,000    
Production and importation permission description 22 million pounds in 2015 and reduces by approximately 4.5 million pounds each year and ends at zero in 2020.      
Production Or Importation Of Hcfc | lb     51 63
Sales Revenue, Net        
Significant Accounting Policies [Line Items]        
Aggregate percentage of revenue the from customers accounted for more than 10% 44.00% 42.00%    
Customer        
Significant Accounting Policies [Line Items]        
Accounts receivable, net $ 5,085,000 $ 2,325,000    
v3.4.0.3
Share-based compensation - Weighted Average Assumptions Used in Determining Fair Value of Share Based Awards at Grant Date by Using Black-Scholes Option Pricing Model (Detail)
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]    
Dividend yield 0.00% 0.00%
Risk free interest rate 0.00%  
Expected volatility 0.00%  
Expected lives 0 years  
Minimum    
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]    
Risk free interest rate   0.83%
Expected volatility   59.00%
Expected lives   3 years
Maximum    
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]    
Risk free interest rate   1.69%
Expected volatility   66.00%
Expected lives   5 years
v3.4.0.3
Share-based compensation - Summary of Status of Company's Stock Option Plan (Detail) - Stock Option Plan - $ / shares
3 Months Ended 12 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Shares    
Outstanding at beginning of period 2,633,589 3,280,874
-Cancelled   (132,500)
-Exercised (120,125) (679,291)
-Granted   164,506
Outstanding at end of period 2,513,464 2,633,589
Weighted Average Exercise Price    
Outstanding at beginning of period $ 2.06 $ 1.98
-Cancelled   3.72
-Exercised 1.36 1.65
-Granted   3.28
Outstanding at end of period $ 2.09 $ 2.06
v3.4.0.3
Share-based compensation - Weighted Average Contractual Life and Exercise Price (Detail) - Stock Option Plan
3 Months Ended
Mar. 31, 2016
$ / shares
shares
Number of Options  
Options outstanding | shares 2,513,464
Options vested | shares 2,505,130
Weighted Average Remaining Contractual Life  
Options outstanding 1 year 10 months 24 days
Options vested 1 year 10 months 24 days
Weighted Average Exercise Price  
Options outstanding | $ / shares $ 2.09
Options vested | $ / shares $ 2.09
v3.4.0.3
Share-based compensation - Intrinsic Value (Detail)
3 Months Ended
Mar. 31, 2016
USD ($)
Schedule of Share based Compensation Arrangements by Share based Payment Award, Performance Options [Line Items]  
Options outstanding $ 3,050,000
Options exercised in 2016 $ 253,000
v3.4.0.3
Share-based compensation - Additional Information (Detail) - USD ($)
1 Months Ended 3 Months Ended
Sep. 10, 2004
Sep. 17, 2014
Aug. 27, 2008
Mar. 31, 2016
Mar. 31, 2015
Dec. 31, 2015
Aug. 19, 1999
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]              
Share based compensation expense       $ 11,000 $ 77,000    
Issuance of stock option to purchase stock       6,000,000      
Common stock reserved for issuance       4,439,023      
Stock option awards vesting period       2 years      
Unrecognized compensation cost related to bon-vested       $ 4,000      
Intrinsic value of options exercised           $ 1,309,000  
Maximum              
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]              
Share-based compensation arrangement by share based payment award options granted contractual term       10 years      
Minimum              
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]              
Share-based compensation arrangement by share based payment award options granted contractual term       3 years      
2004 Stock Incentive Plan              
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]              
Common stock reserved for issuance 2,500,000            
Plan expiration date Sep. 10, 2014            
2008 Stock Incentive Plan | Maximum              
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]              
Expiration period of option awards     10 years        
2008 Stock Incentive Plan | Minimum              
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]              
Expiration period of option awards     5 years        
2014 Stock Incentive Plan              
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]              
Common stock reserved for issuance   3,000,000          
Plan expiration date   Sep. 17, 2024          
Share based compensation arrangement by share based payment award percentage of fair market Person holding more then 10% voting stock   110.00%          
2014 Stock Incentive Plan | Maximum              
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]              
Expiration period of option awards   10 years          
2014 Stock Incentive Plan | Minimum              
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]              
Expiration period of option awards   5 years          
Stock Option Plan              
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]              
Options granted         70,000    
2008 Stock Incentive Plan              
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]              
Common stock reserved for issuance     3,000,000        
Plan expiration date     Aug. 27, 2018        
Share based compensation arrangement by share based payment award percentage of fair market Person holding more then 10% voting stock     110.00%        
1997 Employee Stock Option Plan              
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]              
Common stock reserved for issuance             2,000,000
v3.4.0.3
Debt - Additional Information (Detail)
3 Months Ended
Apr. 08, 2016
USD ($)
Mar. 31, 2016
USD ($)
Sep. 30, 2013
Feb. 15, 2013
USD ($)
Maximum borrowing under PNC facility       $ 40,000,000
PNC Facility effective rate of interest   4.00%    
Interest rate description under PNC facility   Interest charges with respect to loans are computed on the actual principal amount of loans outstanding during the month at a rate per annum equal to (A) with respect to Domestic Rate Loans (as defined in the PNC Facility), the sum of the Alternate Base Rate (as defined in the PNC Facility) plus one half of one percent (.50%) and (B) with respect to Eurodollar Rate Loans, the sum of the Eurodollar Rate plus two and one quarter of one percent (2.25%).    
Long-term Line of Credit   $ 29,808,000    
Line of Credit Facility, Current Borrowing Capacity   $ 10,200,000    
Notes Payable        
Debt Instrument, Maturity Date   Jun. 30, 2020    
Fifth Amendment | Subsequent Event        
Line of Credit Facility, Expiration Date Jun. 30, 2020      
Revolving Credit Facility        
Maximum borrowing under PNC facility       36,000,000
Revolving Credit Facility | Fourth Amendment        
Interest rate description under PNC facility   Revolving Interest Rate shall mean an interest rate per annum equal to (a) the sum of the Alternate Base Rate (as defined in the PNC Facility) plus one half of one percent (.50%) with respect to Domestic Rate Loans and (b) the sum of the Eurodollar Rate plus two and one quarter of one percent (2.25%) with respect to the Eurodollar Rate Loans.    
Revolving Credit Facility | Base Rate        
Debt instrument, description of variable rate basis   Alternate Base Rate (as defined in the PNC Facility) plus one half of one percent    
Fixed charge coverage ratio percentage   0.50%    
Revolving Credit Facility | Base Rate | Fourth Amendment        
Debt instrument, description of variable rate basis   Base Rate (as defined in the PNC Facility) plus one half of one percent    
Revolving Credit Facility | Eurodollar | Fourth Amendment        
Debt instrument, description of variable rate basis   Eurodollar Rate plus two and one quarter of one percent    
Minimum        
Fixed charge coverage ratio   1.00 1.00  
Minimum | Fifth Amendment | Subsequent Event        
Maximum borrowing under PNC facility $ 40,000,000      
Minimum | Revolving Credit Facility | Fifth Amendment | Subsequent Event        
Maximum borrowing under PNC facility 36,000,000      
Maximum        
Fixed charge coverage ratio   1.10 1.10  
Maximum | Fifth Amendment | Subsequent Event        
Maximum borrowing under PNC facility 50,000,000      
Maximum | Revolving Credit Facility | Fifth Amendment | Subsequent Event        
Maximum borrowing under PNC facility $ 46,000,000      
Term Loan        
Maximum borrowing under PNC facility       $ 4,000,000
Term Loan | Fourth Amendment        
Interest rate description under PNC facility   Term Loan Rate shall mean an interest rate per annum equal to (a) the sum of the Alternate Base Rate plus one half of one percent (.50%) with respect to the Domestic Rate Loans and (b) the sum of the Eurodollar Rate plus two and one quarter of one percent (2.25%) with respect to Eurodollar Rate Loans.    
Term Loan | Base Rate | Fourth Amendment        
Debt instrument, description of variable rate basis   Base Rate plus one half of one percent    
Term Loan | Eurodollar | Fourth Amendment        
Debt instrument, description of variable rate basis   Eurodollar Rate plus two and one quarter of one percent    
Term Loan | Revolving Credit Facility | Base Rate        
Fixed charge coverage ratio percentage   0.50%    
Eurodollar Rates | Revolving Credit Facility        
Fixed charge coverage ratio percentage   2.25%    
Eurodollar Rates | Term Loan        
Fixed charge coverage ratio percentage   2.25%    
v3.4.0.3
Acquisitions - Additional Information (Detail)
1 Months Ended 12 Months Ended
Nov. 05, 2014
USD ($)
Jan. 16, 2015
USD ($)
Dec. 31, 2015
USD ($)
Dec. 31, 2014
USD ($)
Number Of Employees 32 3    
Business Acquisition Purchase Price Allocation Description   The purchase price for this acquisition was $2,424,000 cash paid at closing and the assumption of a liability of $20,000, and a maximum of an additional $3,000,000 earn-out.    
Tangible assets   $ 1,606,000 $ 165,000 $ 5,435,000
Intangible assets   1,500,000 335,000 2,335,000
Goodwill   $ 2,338,000 170,000 $ 265,000
Business Combination, Contingent Consideration Arrangements, Range of Outcomes, Value, High     3,000,000  
Business Combination, Contingent Consideration Arrangements, Change in Amount of Contingent Consideration, Liability     1,000,000  
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Net, Total $ 8,035,000      
Business Combination, Provisional Information, Initial Accounting Incomplete, Adjustment, Goodwill     1,900,000  
Business Combination, Provisional Information, Initial Accounting Incomplete, Adjustment, Intangibles     800,000  
Business Combination, Provisional Information, Initial Accounting Incomplete, Adjustment, Inventory     100,000  
Business Combination, Contingent Consideration Arrangements, Change in Range of Outcomes, Contingent Consideration, Liability, Value, High     1,100,000  
Business Combination, Contingent Consideration, Liability, Noncurrent     900,000  
Business Combination Earn Out Liability, Cash Paid     445,000  
Other Current Liabilities [Member]        
Business Combination, Contingent Consideration, Liability, Current     900,000  
Current Liabilities [Member]        
Business Combination, Contingent Consideration, Liability, Current     371,000  
Other Income [Member]        
Business Combination, Contingent Consideration Arrangements, Change in Range of Outcomes, Contingent Consideration, Liability, Value, Low     $ 300,000  
Minimum [Member]        
Intangible assets amotized period     2 years 2 years
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Net, Total     $ 4,400,000  
Business Combination, Contingent Consideration, Liability     $ 800,000  
Maximum [Member]        
Intangible assets amotized period     10 years 10 years
Allocated Share Based Compensation Expense     $ 3,000,000  
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Net, Total     5,400,000  
Business Combination, Contingent Consideration, Liability     $ 2,000,000  
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/**
 * Rivet Software Inc.
 *
 * @copyright Copyright (c) 2006-2011 Rivet Software, Inc. All rights reserved.
 * Version 2.4.0.3
 *
 */

var Show = {};
Show.LastAR = null,

Show.hideAR = function(){	
	Show.LastAR.style.display = 'none';
};

Show.showAR = function ( link, id, win ){
	if( Show.LastAR ){
		Show.hideAR();
	}
		
	var ref = link;
	do {
		ref = ref.nextSibling;
	} while (ref && ref.nodeName != 'TABLE');

	if (!ref || ref.nodeName != 'TABLE') {
		var tmp = win ?
			win.document.getElementById(id) :
			document.getElementById(id);

		if( tmp ){
			ref = tmp.cloneNode(true);
			ref.id = '';
			link.parentNode.appendChild(ref);
		}
	}

	if( ref ){
		ref.style.display = 'block';
		Show.LastAR = ref;
	}
};
	
Show.toggleNext = function( link ){
	var ref = link;
	
	do{
		ref = ref.nextSibling;	
	}while( ref.nodeName != 'DIV' );

	if( ref.style &&
		ref.style.display &&
		ref.style.display == 'none' ){
		ref.style.display = 'block';

		if( link.textContent ){
			link.textContent = link.textContent.replace( '+', '-' );
		}else{
			link.innerText = link.innerText.replace( '+', '-' );
		}
	}else{
		ref.style.display = 'none';
			
		if( link.textContent ){
			link.textContent = link.textContent.replace( '-', '+' );
		}else{
			link.innerText = link.innerText.replace( '-', '+' );
		}
	}
};

/* Updated 2009-11-04 */
/* v2.2.0.24 */

/* DefRef Styles */
.report table.authRefData{
	background-color: #def;
	border: 2px solid #2F4497;
	font-size: 1em; 
	position: absolute;
}

.report table.authRefData a {
	display: block;
	font-weight: bold;
}

.report table.authRefData p {
	margin-top: 0px;
}

.report table.authRefData .hide {
	background-color: #2F4497;
	padding: 1px 3px 0px 0px;
	text-align: right;
}

.report table.authRefData .hide a:hover {
	background-color: #2F4497;
}

.report table.authRefData .body {
	height: 150px;
	overflow: auto;
	width: 400px;
}

.report table.authRefData table{
	font-size: 1em;
}

/* Report Styles */
.pl a, .pl a:visited {
	color: black;
	text-decoration: none;
}

/* table */
.report {
	background-color: white;
	border: 2px solid #acf;
	clear: both;
	color: black;
	font: normal 8pt Helvetica, Arial, san-serif;
	margin-bottom: 2em;
}

.report hr {
	border: 1px solid #acf;
}

/* Top labels */
.report th {
	background-color: #acf;
	color: black;
	font-weight: bold;
	text-align: center;
}

.report th.void	{
	background-color: transparent;
	color: #000000;
	font: bold 10pt Helvetica, Arial, san-serif;
	text-align: left;
}

.report .pl {
	text-align: left;
	vertical-align: top;
	white-space: normal;
	width: 200px;
	white-space: normal; /* word-wrap: break-word; */
}

.report td.pl a.a {
	cursor: pointer;
	display: block;
	width: 200px;
	overflow: hidden;
}

.report td.pl div.a {
	width: 200px;
}

.report td.pl a:hover {
	background-color: #ffc;
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